LAFARGE UK PENSION PLAN REPORT AND ACCOUNTS YEAR ENDED 30 JUNE 2014

Transcription

1 Scheme Registration Number: LAFARGE UK PENSION PLAN REPORT AND ACCOUNTS YEAR ENDED 30 JUNE 2014

2 REPORT AND ACCOUNTS YEAR ENDED 30 JUNE 2014 CONTENTS TRUSTEE AND ADVISERS 3 REPORT OF THE TRUSTEE 4 STATEMENT OF TRUSTEE S RESPONSIBILITIES 10 INDEPENDENT AUDITOR S REPORT 11 FUND ACCOUNT 12 NET ASSETS STATEMENT 13 NOTES TO THE ACCOUNTS 14 SUMMARY FUNDING STATEMENT 22 AUDITOR S STATEMENT ON CONTRIBUTIONS 24 SCHEDULE OF CONTRIBUTIONS FINAL PAY SECTION 25 APPENDIX TO SCHEDULE OF CONTRIBUTIONS FINAL PAY SECTION 27 ACTUARIAL CERTIFICATION OF SCHEDULE OF CONTRIBUTIONS FINAL PAY SECTION 28 SCHEDULE OF CONTRIBUTIONS LRPS SECTION 29 APPENDIX TO SCHEDULE OF CONTRIBUTIONS LRPS SECTION 31 ACTUARIAL CERTIFICATION OF SCHEDULE OF CONTRIBUTIONS LRPS SECTION 32 ACTUARIAL CERTIFICATION OF TECHNICAL PROVISIONS 33 PAYMENT SCHEDULE MONEY PURCHASE SECTION 34 SUMMARY OF CONTRIBUTIONS 36 INVESTMENT REPORT COMPLIANCE STATEMENT

3 Trustee and Advisers Trustee Lafarge UK Pension Trustees Limited Regent House, Station Approach, Dorking, Surrey, RH4 1TH Trustee Board Chairman Norman Braithwaite Independent Chairman Employer Directors Bob Andrews Pensioner formerly Redland PLC Member Nominated Directors (MNDs) Dyfrig James Nick Peall Jenny Honeysett Arthur Cunningham Steve Taylor (up until 04/06/14) Robert Napier (from 05/06/14) Paul Hunter (reelected from 05/06/2014) Director Pensioner formerly Lafarge Tarmac Cement UK Financial Controller Lafarge Tarmac Cement Pensioner Former Lafarge Redland Pension Scheme member Capital and Development Manager Lafarge Tarmac Aggregates Pensioner Former Lafarge Redland Pension Scheme member Pensioner NonLafarge Redland Pension Scheme member Lynn Clarke (up until 04/06/14) Les Waining (from 05/06/14) UK IT Skills Manager Lafarge Tarmac Aggregates Pensioner NonLafarge Redland Pension Scheme member Secretary John Lovell (up until 31/10/13) Richard Harris (from 01/11/13) Lafarge Building Materials Limited Regent House, Station Approach, Dorking, Surrey, RH4 1TH Actuary (for the purposes of the Pensions Act 1995) Alison Blay FIA Towers Watson Watson House, Reigate, Surrey, RH2 9PQ Auditor KPMG LLP 15 Canada Square (4 th floor) Canary Wharf London E14 5GL Bankers Barclays Bank PLC Level 28, 1 Churchill Place London E14 5HP Investment Advisers Graham Allen Investment Practitioner, member of Investment Committee Fiduciary Manager Towers Watson (from 01/07/13) Watson House, Reigate, Surrey, RH2 9PQ Fiduciary Manager Monitor KPMG (from 01/07/13) 8 Salisbury Square, London EC4Y 8BB Solicitors Sacker & Partners LLP 20 Gresham Street, London EC2V 7JE 3

4 REPORT OF THE TRUSTEE The Trustee Board presents the report and accounts of the Lafarge UK Pension Plan (the Plan) for the year ended 30 June The financial statements and the Trustee Report have been prepared in accordance with Section 41(1) and (6) of the Pensions Act THE PLAN The Plan is a selfadministered occupational pension scheme. The Plan contains a Defined Benefit arrangement which is closed to future benefit accrual and a contractedin Defined Contribution arrangement. A separate trust (The Lafarge UK Death Benefit Plan) is established for Death in Service benefits. The Trustee is the trustee of the Lafarge UK Death Benefit Plan. With effect from 7 January 2013 the Administration Agreement between the Trustee and Lafarge (UK) Services Ltd was transferred to Lafarge Building Materials Ltd which had become the new employer of the Pensions Department employees as a consequence of the joint venture between Lafarge SA and Anglo American plc s UK Cement, Aggregates, Readymix and Paving businesses. TRUSTEE Throughout the year Lafarge UK Pension Trustees Limited acted as the Trustee of the Plan. The names of the Directors who were serving at 30 June 2014 are given on page 3. At the beginning and end of the period every Director in office held a 1 share in the capital of the company. There were no other interests in the capital of the company. The constitution of the Trustee Board is as follows: The Chairman, who must be independent of the Employers and serves for a term reviewed every three years. Serving Directors nominate candidates for appointment by the Principal Company. Four Directors appointed by the Employer (Employer Directors). Four Directors elected by the elected representatives, Member Nominated Directors (MNDs). MNDs were elected by the PCC to serve for a three year period. During the year the Trustee has reviewed its approach to the appointment of Member Nominated Directors. Further details of the PCC and the Member nominated representatives during the Plan year and subsequent changes are provided in the Compliance Statement on page 40. PLAN GOVERNANCE Trustee Board and Committees The Trustee Board has procedures in place to govern the Plan effectively and efficiently. The Board retains overall responsibility for all aspects of the Plan and has delegated certain tasks and functions to committees, as it believes this should lead to better governance. Each committee has a written Terms of Reference which is reviewed annually. The Chairman and Secretary maintain an annual Business Schedule setting out the meetings of the Trustee Board and its committees, planning the main content of each meeting to conduct the Board s business in an orderly manner. In general, the full Board and Investment Committee meet quarterly. The Trustee Board regularly reviews its committee structure and updates the Committees Terms of Reference with the emphasis on providing each Committee with a focus on their area of responsibility and appropriate reporting to the Trustee Board at regular intervals. Committee members include Directors selected to give a balance of skills, expertise and interest on the committees and may request attendance of relevant professional advisers as they consider necessary. 4

5 REPORT OF THE TRUSTEE PLAN GOVERNANCE (continued) The Trustee has in place the following committees: The Investment Committee During the year the Committee comprised four Directors which included the Independent Chairman, plus a representative of Lafarge SA and an independent investment advisor. The Committee meets quarterly to monitor the performance of the Fiduciary Manager and consider new investment opportunities and strategies. The full Committee met four times during the year ended 30 June The Administration and Discretions Committee This Committee comprises 2 MNDs and 2 management representatives (one of which must be an Employer Director) and met twice during the year ended 30 June 2014 to monitor the administration service provided by Lafarge Building Materials Limited, member communications and consider the payment of discretionary benefits (where discretion has not been delegated to the Secretary) such as Ill Health and Dependant s pensions. The Defined Contribution Committee This Committee comprises 2 MNDs and 2 representatives from participating employers (one of which must be an Employer Director) and met twice during the year ended 30 June 2014 to monitor the Money Purchase section of the Plan and consider new developments in particular in relation to money purchase investments, member communication, member education and annuity provision. The Audit and Risk Management Committee This Committee comprises the Chairman of the Board plus representatives from each of the three committees above. It meets at least twice a year and its principal role is oversight of the Trustee's Report and Accounts and the Trustee s risk and controls framework (see below). The Committee met twice during the year ended 30 June The Employer Events and Monitoring Committee The Committee comprises 6 Directors including the Chairman and meets at least once a year. During the year ended 30 June 2014 the Committee met ten times. Its primary function is to assess and monitor the financial position of the employers that participate in the Plan. The Committee deals with notifiable events, with any matters the employers decide to seek clearance upon with the Pensions Regulator and is authorised to request independent advice, as relevant, to perform its role. During the year this Committee s activities have focused on covenant issues relating to the Actuarial Valuation and the proposed Lafarge Holcim merger. Trustee Director Competencies A schedule of Trustee Knowledge and Understanding has been prepared, tailored to the Plan s circumstances based on the Pensions Regulator s guidance on relevant expertise for trustees. On appointment, Directors and committee members receive training on relevant pension matters and thereafter are provided with periodic updates. Directors and committee members are regularly asked to assess their levels of knowledge and understanding. The individual assessments are recorded and compiled to identify the strengths collectively, of the Board and its committees, and also of individual Directors. Where a low level of knowledge is indicated, either suitable training is arranged or appropriate information is provided. 5

6 REPORT OF THE TRUSTEE PLAN GOVERNANCE (continued) When preparing the Business Schedule, training needs are identified so that training may be arranged before the matters are considered. The Directors completed a selfassessment questionnaire during the year. Overall the Directors considered that the Board were performing well. Managing Conflicts of Interest The Board has in place procedures to identify and manage conflicts of interest for members of the Board or the committees. Individual directors may seek external counsel and may initiate the Plan s procedure to manage their conflict. At the beginning of meetings, the Chairman and Secretary are required to consider the likelihood of conflicts arising, based on the agenda, and to deal with any potential conflicts. Identification and Control of Risk The Trustee Board has established procedures to identify, measure and manage the significant risks inherent in the operation of the Plan by proportionate internal controls. The assessment covers a wide range of external and internal matters including compliance with laws and the Plan Rules, administration and systems, funding, investment and safe custody of assets. The Board has overall responsibility for the programme but has delegated oversight of appropriate risks and controls to the relevant committees described above, each of which maintains a Risk Register for their particular area of responsibility. As part of a programme of continuing review, the Audit and Risk Management Committee reviews the Risk Registers of each of the Committees. The procedures include consideration of the controls to prevent or detect fraud within each area of the Plan s operation, in particular the investment and administration routines. Appropriate segregation of duties and responsibility, together with supervision and authorisation procedures, are in place and are designed to deter fraud and to lead to timely detection and reporting of any such matters to the Board. Compliance The Plan had procedures in place at 30 June 2014 to satisfactorily demonstrate compliance with the requirements of the Pensions Act 2004 and the Codes of Practice formally issued by the Pensions Regulator. The Plan is compliant with the Codes of Practice. The compliance procedures are administered on a daily basis by the Administrator. Formal reports are made to the Administration and Discretions Committee, at least six monthly, on the service standards, administration costs and compliance with relevant rules and regulations. The Compliance Statement on pages 40 to 43 provides information about the Plan that is required to be disclosed by law and provides general information regarding the Plan. Myners Principles and Responsible Investment The Trustee has considered the principles set out in the Myners Report (the Myners Principles) as subsequently revised in December 2004, that in general reflect good practice for the governance of pension schemes. The Trustee s principles for the governance of the Plan, and the investment of the Plan s assets, generally comply with the higher level Myners Principles and where the Trustee considers it is appropriate to do so, with the more detailed principles for defined benefit and contribution schemes. Following the issue of the revised principles, the Trustee has considered them and has taken appropriate action. The Trustee s approach to responsible investment is set out in the Statement of Investment principles and in broad terms they have delegated responsibility to their investment managers to exercise rights associated with the investment in accordance with the Institutional Shareholders Committee s statement of principles on corporate governance which is reported to the Investment Committee. 6

7 REPORT OF THE TRUSTEE TRUST DEED AND RULES A consolidated Trust Deed and Rules for the Plan was signed and became effective from 6 April A number of amending Deeds were made between in January, 2007 and March At their meeting of 12 September 2012 the Directors adopted a new Deed consolidating all of the Amending Deeds with the consolidated Trust Deed and Rules of April THE LAFARGE SA AGREEMENT This Deed of Agreement between Lafarge SA and the Trustee provides that if Lafarge International Holdings Limited were to fail to meet its obligations to the Plan then Lafarge SA would meet these obligations. PENSION INCREASES There are two main categories of pensions in payment for which different pension increase rules apply. For the former Lafarge Redland Pension Scheme members an increase of 5.0% was applied on 1 July 2014 (3.2% 1 July 2013) and for former Blue Circle Pension Scheme members, a pension increase of 4.8% was applied on 5 April 2014 (3.1% on 6 April 2013). MEMBERSHIP SUMMARY As at the year end membership of the Plan was as follows: 30 June June 2013 Final Pay Money Purchase Final Pay Money Purchase Active Members 0 1, ,054.. Deferred Pensioners 10,908 1,023 10, Pensioners and Dependants 19, , On 31 October 2011 the Final Pay section of the Plan closed to future accrual and the active Final Pay members were transferred to the Money Purchase section of the Plan. These members retained deferred pensions in the Final Pay section but are not included in the above Deferred Pensioners figures. Hope Construction Materials ceased to participate in the Money Purchase section of the plan after 30 June These 301 members are shown as Active members as at 30 June 2013 but became deferred pensioners as at 1 July 2013 and are included in the deferred member numbers at 30 June FINANCIAL REVIEW During the year under review, the value of the Plan has changed as follows: million Value at 30 June ,545.5 Change in value over the year Value at 30 June ,

8 REPORT OF THE TRUSTEE FINANCIAL REVIEW (continued) A summary of the Plan's income and expenditure in the year is given below. Income ( million) Contributions Money Purchase contributions from Members 0.3 Contributions from Companies including PenXchange Scheme 30.7 Investment income 53.6 Change in market value of investments Outgoings ( million) Pensions Tax free payments at retirement Death Benefits 0.4 Refunds and payments for leavers Administration and Investment Management Expenses Net increase in the Fund It is emphasised that the market value of the net assets of the Plan is a snapshot as at 30 June 2014 and that there can be sharp shortterm fluctuations in market value. Given the longterm nature of pension schemes, too much emphasis should not be given to shortterm rises or falls in the market value of the Plan s investments. Therefore, it is advised that the Plan s accounts should be read in conjunction with the Summary Funding Statement on page 22. The daytoday administration of the Plan is delegated to Lafarge Building Materials Limited. The direct costs of investment management and of the administration of the Plan were agreed by the Trustee to be borne by the Plan and amounted to 12.1 million and 2.2 million respectively for the year to 30 June 2014 (see Notes 9 and 7 to the accounts respectively). INVESTMENTS The Plan's investments are held by the Trustee separately from the finances of Lafarge SA and the participating employing companies and in accordance with the Trust Deed. The Trustee has given instructions to the investment managers to prohibit the use or letting of the Plan's direct property assets by any company in the Lafarge S.A. group and to prohibit investment in shares or bonds or loans of Lafarge S.A. or its subsidiaries or associated companies except in respect of indirect investment in pooled or tracker funds and to restrict any employer related investments to levels permitted by the Act. The Trustee has established an Investment Committee to oversee the Plan s investments. The Investment Report, setting out details of the Plan s investment arrangements appears on page 37. ACTUARIAL POSITION The Plan s triennial actuarial valuation had an effective date of 30 June 2012 and details can be found in the Schedule of Contributions (included with this Report) and the Actuarial report and Statement of Funding principles which are available from the Secretary on request. In summary the valuation revealed a deficit of 660m at the effective dated based on the market value of assets of 2,368m and a value placed on the liabilities of 3,028m. The Trustee conducted an independent review of the Employers' covenant and following consultation and agreement with the company it was agreed that the deficit would be repaid over 15 years through the payment of minimum cash deficit contributions and an expected out performance of the Plans assets of 1.2% per annum over that assumed when valuing the liabilities. From 2016, further additional contributions will be payable subject to Lafarge reattaining investment grade status. If these payments were made the deficit would be recovered more quickly than 15 years. 8

9

10 STATEMENT OF TRUSTEES RESPONSIBILITIES Statement of trustee s responsibilities for the financial statements The audited financial statements, which are to be prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) 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: (i) 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 the assets and liabilities, other than liabilities to pay pensions and benefits after the end of the Plan year; and (ii) 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 accounts have been prepared in accordance with the Statement of Recommended Practice Financial Reports of Pension Schemes. The trustee has supervised the preparation of the financial statements and has agreed suitable accounting policies, to be applied consistently, making estimates and judgements on a reasonable and prudent basis. They are also responsible for making available each year, commonly in the form of a trustees annual report, information about the Plan prescribed by pensions legislation, which they should ensure is consistent with the financial statements it accompanies. The trustee also has certain responsibilities in respect of contributions which are set out in the statement of trustee s responsibilities accompanying the trustee s summary of contributions. The trustee has a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to them to safeguard the assets of the Plan and to prevent and detect fraud and other irregularities, including the maintenance of appropriate internal controls. 10

11

12 FUND ACCOUNT YEAR ENDED 30 JUNE 2014 DB Sections MP Section Total Total Notes Contributions Contributions 3 23,183 7,897 31,080 28,145 Transfers from other schemes ,183 7,897 31,080 28,262 Benefits and expenses Benefits payable 5 123,961 2, , ,578 Payments in respect of leavers 6 3, ,842 2,675 Administration expenses 7 2, ,217 3, ,215 3, , ,389 Net (withdrawal)/addition from dealings with members (106,032) 4,591 (101,441) (100,127) Returns on investments Movement in market value of fund investments ,659 5, , ,053 Investment income 8 53,553 53,553 58,939 Investment management expenses 9 (12,010) (79) (12,089) (7,280) Net return on investments 223,202 5, , ,712 Net increase in the fund 117,170 10, , ,585 Net assets of the Plan at the beginning of the year 2,505,577 39,895 2,545,472 2,395,887 Net assets of the Plan at the end of the year 2,622,747 50,059 2,672,806 2,545,472 The notes on pages 14 to 21 form part of these financial statements. 12

13

14 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE Basis of Preparation The Financial Statements have been prepared in accordance with the Occupational Pensions Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 and with the guidelines set out in the Statement of Recommended Practice (revised May 2007), Financial Reports of Pension Schemes (the Revised SORP). 2. Accounting Policies (1) Investments Investments are stated at market value at the year end. The market value of quoted securities is based on closing prices. These prices may be the bid price on the relevant Stock Exchange or, where this is not available, on the latest trade price when securities are traded. The value of fixed interest stocks has been quoted excluding the value of interest accruing from the previous interest payment date. Holdings in managed funds have been valued at the bid value of the unit prices declared by the relevant Fund Manager at that date. Direct property investment is valued annually at external independent open market valuations. The property investments were valued by Collier CRE, an external independent valuer, at 31 December A further review has been made at 30 June 2014 to consider the change in property values as indicated by the IPD All Properties index during the period 1 January to 30 June No adjustment was made to the December 2013 valuation. (2) Investment income Income from fixed interest investments and bank interest is accounted for on an accruals basis. Income from dividends is accounted for on an ex dividend basis. Realised and unrealised capital gains and losses on investments are dealt with in the Fund Account in the period in which they arise. Property income is accounted for on the basis of rent receivable, net of expenses, in respect of each financial period. Investment income is stated inclusive of recoverable taxes. (3) Foreign currencies Assets and liabilities in foreign currencies are expressed in Sterling at the rate of exchange ruling at the period end. Gains and losses arising on conversion or translation of investments are dealt with as part of realised and unrealised investment gains and losses. (4) Contributions and benefits Employee normal and additional voluntary contributions are accounted for when deducted from pay. Employer normal and additional contributions are accounted for in the period to which the corresponding pay relates. Employer augmentation contributions are accounted for in accordance with the agreement under which they are being paid. Benefits are accounted for in the period in which the member notifies the Trustee of their decision on the type or amount of benefit to be taken or, if there is no member choice, on the date of retirement or leaving. (5) Transfers to other schemes Transfer values have been included in the accounts when paid. Provision is made for group transfers in accordance with the terms of the transfer agreement. (6) Administration costs and management expenses All costs associated with investment management, actuarial advice, accounting and administration borne by the Plan are accounted for in the period to which they relate. 14

15 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE CONTRIBUTIONS RECEIVABLE DB MP Sections Section From members Additional voluntary contributions From employers Normal contributions 6,840 6,840 11,358 Deficit fund contributions 20,000 20,000 13,275 Scheme Apportionment Arrangement contribution Additional contributions for individual augmentations 3, ,874 2,558 23,183 7,531 30,714 27,191 Total contributions 23,183 7,897 31,080 28,145 Contributions amounting to 20.0 million (2013: 12.0 million) were received by the final pay section in respect of additional employer contributions agreed as part of the actuarial valuation effective in June 2009 for deficit recovery. In the previous year a further deficit contribution of million was received reflecting the 2012 financial performance of the UK companies. This reflects the m due as set out in the Schedules of Contributions on pages 25 to 31. Under the terms of the Recovery Plan the employers will make a further deficit contribution of 25 million by 31 December Additional contributions amounting to 3,874,000 were received in respect of individual augmentations (2013: 2,558,000). Employer normal contributions include 2 million (2013: 3.6 million) in respect of member salary sacrifice under the PenXchange Scheme. 4 TRANSFERS FROM OTHER SCHEMES DB MP Sections Section Individual transfers in BENEFITS PAYABLE DB MP Sections Section Pensions 115, , ,768 Purchase of annuities Death benefits Pension commutation lump sums 8,209 2,438 10,647 9, ,961 2, , ,578 6 PAYMENTS IN RESPECT OF LEAVERS DB MP Sections Section Refunds to leavers Transfers to other schemes 3, ,838 2,650 3, ,842 2,675 15

16 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE ADMINISTRATION EXPENSES DB MP Sections Section Pensions Administration fees and expenses 1, ,173 1,500 Trustee Chairman & other directors fees & expenses Actuary s fees valuations other Auditor s fees and expenses Legal advisers fees Other professional fees for employer covenant advice and overseas tax claims and returns Trustee Insurance Pension Protection Fund and similar levies , ,217 3,136 Pension administration fees represent the direct costs charged to the Plan in respect of Lafarge Building Materials Limited. 8 INVESTMENT INCOME DB MP Sections Section Income from fixed interest securities 11,803 11,803 15,423 Dividends from equities 8,463 8,463 23,685 Income from indexlinked securities 10,120 10,120 5,683 Income from managed and unitised funds 9,267 9,267 6,220 Cash distributions from Private Equity investments 6,551 6, Rental income from properties 5,083 5,083 7,137 Interest on cash deposits Annuity Income Other 1,576 1, ,553 53,553 58,939 9 INVESTMENT EXPENSES DB MP Sections Section Investment managers fees 10, ,867 6,648 Property management fees Investment professional fees investment advice Custody, valuation and performance measurement fees 12, ,089 7,280 Investment management fees for 2014 and 2013 include 2,513,411 and 1,658,000 respectively in respect of Lafarge Investment Management Limited. Included in the investment manager fees stated are management fees for certain managed funds and for the Private Equity portfolio estimated at 6,001,000 (2013: 3,443,000) which are deducted from the market values. 16

17 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE MOVEMENT IN MARKET VALUE OF INVESTMENTS DB SECTIONS Value at 30 June 2013 Purchases at Cost Sales Proceeds Change in Market value Value at 30 June Equities 704, ,896 (932,905) 53, ,551 Derivatives 4,055 (5,412) 25,284 23,927 Fixed Interest Securities 385, ,443 (713,974) 12, ,239 Index Linked Securities 464, ,393 (469,885) 10, ,578 Managed & Unitised Funds 694,638 1,233,688 (711,866) 36,130 1,252,590 Properties 103,185 (2,166) 8, ,964 Private Equity 124,699 11,214 (16,325) 6, ,521 Cash & Other Investment Assets 22,099 (6,340) 29,051 44,810 Other Investment Liabilities (363) (363) Total 2,499,342 2,798,689 (2,858,873) 181,659 2,620,817 An adjustment amounting to 6,001,000 (2013: 3,443,000) has been made to the change in market value in respect of estimated management fees for certain managed funds and Private Equity which are deducted from market values. These estimated fees have been included in the total investment fees in Note 9 on Page 16. MOVEMENT IN MARKET VALUE OF INVESTMENTS MONEY PURCHASE SECTION Value at 30 June 2013 Purchases at Cost Sales Proceeds Change in Market value Value at 30 June Pooled Investment Vehicles for: Money Purchase Investments 36,767 6,978 (2,442) 5,465 46,768 AVC investments 1,551 (138) 187 1,600 Total 38,318 6,978 (2,580) 5,652 48, INVESTMENTS DB MP Sections Section Quoted Equities and Convertibles UK 25,818 25, ,913 Overseas 94,733 94, , , , ,463 Derivative contracts Assets: Interest rate swaps 25,221 25,221 Inflation swaps Forward currency contracts 6,532 6,532 31,838 31,838 Liabilities: Interest rate swaps (818) (818) Inflation swaps (7,058) (7,058) Forward currency contracts (35) (35) (7,911) (7,911) Total derivative contracts, net 23,927 23,927 17

18 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE INVESTMENTS (continued) DB MP Sections Section Fixed Interest UK public sector quoted 380, , ,642 UK quoted 162,070 Overseas , , ,712 Index Linked UK government 561, , ,909 Managed Funds and Pooled Investments Equities UK 65,109 overseas equity 320, , ,593 Emerging Markets Fund 183, ,799 19,487 UK Companies Financing Fund 11,793 11,793 14,382 UK enhanced bonds 115,344 Global Screened Bonds 154, ,681 29,367 Iron Catastrophe Fund 67,510 67,510 45,356 Systematic Trading 65,457 65,457 Energy Cap Global Equity 78,508 78,508 Multistrategy alternative credit 52,235 52,235 Volatility Premium 55,189 55,189 MultiAsset 29,522 29,522 Global Sovereign Credit 116, ,732 Securitised Credit 59,549 59,549 Commodities 50,822 50,822 Direct Lending 5,748 5,748 Money Purchase and AVC investments 48,368 48,368 38,318 1,252,590 48,368 1,300, ,956 Property UK shops, offices and industrial 92,187 92,187 88,434 Indirect property investments 17,777 17,777 14, , , ,185 Private Equity US and European partnerships 126, , ,699 Cash Deposits and other investment assets Sterling cash 38,571 38,571 10,888 Overseas currency ,163 Balances receivable on unsettled trades Accrued investment income 4,892 4,892 8,277 44,810 44,810 22,099 Other investment liabilities Balances payable on unsettled trades (363) (363) (363) TOTAL INVESTMENTS 2,620,817 48,368 2,669,185 2,537,660 No individual investments make up more than 5% of the Plan s assets. Transaction costs are included in the cost of purchases and sales proceeds. Transaction costs include costs charged directly to the Plan such as fees, commissions, stamp duty and other fees. Transaction costs incurred during the year amounted to 2,028,043 (2013: 358,041). In addition to the transaction costs disclosed, indirect costs are incurred through the bidoffer spread on investments within pooled investment vehicles. The amount of indirect costs is not separately provided to the Plan. 18

19 11 INVESTMENTS (continued) LAFARGE UK PENSION PLAN NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2014 Type of contract Expiration Notional principal 000 Asset 000 Liability 000 Inflation swaps 153 years 652, (7,058) Interest rate swaps 153 years 1,129,640 25,221 (818) 25,306 (7,876) A summary of forward currency contracts held at 30 June 2014 is as follows: Settlement dates Currency bought Currency sold Asset 000 Liability /07/ /07/ /08/ /09/ /07/ /07/ /08/ /09/ /07/ /07/ /08/ /09/ /09/ /07/ /08/ /09/ /07/ /07/ /08/ /08/ /09/ ,777 13,703,773 14,667,804 13,940, ,512,521 96,034, ,417, ,425,510 $57,656,136 $18,742,234 $67,632,341 $42,882,369 $22,100,000 $57,656,136 $57,656,136 $57,656,136 $57,656,136 $25,500,000 $57,656,136 $25,500,000 $57,656, /09/2014 $25,500, ,532 (35) Net asset 6,497 Collateral for swap contracts Collateral arrangements are in place for derivative contracts in order to manage the potential risk of counterparty default. Such arrangements require collateral in the form of fixed interest securities or cash equivalents to be passed between the parties dependent upon whether there exists a net asset or a net liability on the contract as at the end of the period. As at 30 June 2014, the collateral received/pledged for the swap portfolio with SSGA was as follows: Collateral received: Fixed interest securities 6,831 Inflation linked securities 1,698 Cash equivalents 15,180 (35) Net collateral received 23,709 Collateral balances are held separately to other asset holdings of the portfolio and are not reinvested. 19

20 NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE CURRENT ASSETS DB Sections MP Section Pensions prepayment 3,275 3,275 3,084 Contributions receivable from employees Contributions receivable from employer Bank current account and Money Market deposits 3,095 1,399 4,494 9,268 Other debtors 58 6,384 1,794 8,178 12,711 Bank account deposits shown for the Money Purchase Section as at 30 June 2014 are allocated as follows Contributions received and subsequently invested 17 Balance of 1% employer contribution in respect of MP Section expenses 1,124 Payments due in respect of leavers 258 1, CURRENT LIABILITIES DB Sections MP Section Benefits outstanding in respect of leavers Taxes payable ,152 Investment management creditors 2, ,152 1,377 Sundry administration creditors and accruals 1, ,175 1,788 4, ,557 4, INSURANCE POLICIES FOR MONEY PURCHASE SECTION DESIGNATED TO MEMBERS For the year ended 30 June 2014 Money Purchase Section members and employers contributions were invested in funds passively managed by Legal & General. (See Investment Report on page 37 for details). Insurance policies in respect of liabilities that accrued prior to 1 July 1991 for benefits of certain pensioners and deferred pensioners have been assigned to the Trustee. The aggregate value of those policies has not been ascertained but it is unlikely to be significant in relation to the amount of the Plan s net assets. During the year 315,000 (2013: 277,000) was received in annuity income from Insurance Companies and is included in investment income. 20

21 15 AVC SCHEMES LAFARGE UK PENSION PLAN NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2014 AVCs invested in the Plan At the end of the year accumulated AVC funds amounting to 4.8 million (30 June 2013: 3.9 million) were invested within the Plan for active and deferred members to secure additional benefits on a money purchase basis. Movements and balances on these funds are included in the Fund Account and Net Assets Statement on page 12 and 13 of the accounts, but are not separately identified. Interest is added to members AVC funds half yearly on 5 October and 5 April. Interest was credited to these accounts on 5 October 2013 at 3.7% and 5 April 2014 at 2.5%. Some former Redland members make AVCs to secure additional benefits with the Plan. AVCs invested externally Assets designated to members Contributions and other movements in AVCs invested externally for active and deferred members in respect of members with Zurich Life are reflected in the amounts disclosed for the relevant section in the financial statements. These funds secure additional benefits on a money purchase basis. Contributions to Zurich Life ceased on 31 October With effect from 1 November 2012, all contributions for AVCs invested externally are invested with Legal & General. 16. EMPLOYER RELATED INVESTMENTS AND RELATED PARTY TRANSACTIONS Lafarge Investment Management Limited is a wholly owned subsidiary of Lafarge Building Materials Limited. Lafarge Building Materials Limited is a subsidiary of Financiere Lafarge. Both are ultimate subsidiaries of Lafarge S.A. Fees paid to certain Trustee Directors are detailed in note 7 to the accounts. Pensioner Trustee Directors receive a pension from the Lafarge UK Pension Plan. There are no material employerrelated investments in the Fund. 17. COMMITMENTS AND CONTINGENT LIABILITIES At the end of the year, 40 million of the total commitment of 161 million remained outstanding to Pantheon, the Plan s private equity fundoffunds manager. 21

22 Valuation Talk incorporating the Summary Funding Statement for the period ending 30 June 2013 The assets of the Lafarge UK Pension Plan ( the Plan ) are held separately from Lafarge. Every three years the Plan is required to undergo a valuation. The latest valuation was performed as at 30 June 2012 and was completed in March Introduction The valuation provides a snapshot view of the Plan s funding position. It compares the value of the Plan s liabilities with the value of the Plan s assets, assessed at the same date, and identifies any funding shortfall or surplus. Although there are a number of different ways to measure a pension scheme s funding position, this report gives the results of two methods used by the Plan actuary: the ongoing basis (which shows what might happen if the Plan continues with business as normal) the solvency basis (which shows what might happen if the Plan was to be wound up or discontinued). The Trustee discusses and agrees with the Company how to value the Plan s liabilities and, if there is a shortfall, agrees how the Company will meet this over time this is known as a Recovery Plan. The valuation results in brief The main results of the valuation on the Plan s ongoing basis at 30 June 2012 are summarised below: Value of past service liabilities 3,028 million Assets at market value 2,368 million Shortfall 660 million Funding level 78.2% The funding level has improved slightly from the position in This is principally due to an improvement in the Plan s investments, which was offset by changes in financial market conditions and increases in life expectancies, both of which increase the value placed on the Plan s liabilities. Meeting the shortfall The size of the shortfall at 30 June 2012 was 660 million. The Trustee has to balance the desire for the shortfall to be met as quickly as possible with what the Company can reasonably afford to pay. The Trustee took specialist advice to help it assess what was affordable. Discussions with the Company have resulted in an agreement for the Company to make a series of deficit contribution payments to the Plan over 15 years to achieve full funding of the Plan on an ongoing basis. In summary the Recovery Plan is made up of: Minimum guaranteed annual payments starting at 25 million in 2014, 30 million in 2015 and 32.5 million from 2016 onwards. Additional annual payments may be payable subject to Lafarge reattaining investment grade status. This will reduce the cost of Lafarge s borrowings, thus making it more affordable to pay a higher level of contributions to the Plan of 36 million a year from 2016 onwards. The valuation relates chiefly to deferred and pensioner members with Final Salary benefits. For PensionBuilderplus members, liabilities are equal to the accumulated balances held in each individual s investment account. For this valuation the Pensions Regulator has been proactive in monitoring the process, which led to an approved extension to the timetable prior to completion. Valuation on a solvency basis Although neither the Trustee nor Lafarge has given any notice, or has any intention, of winding up the Plan, the Trustee is required by legislation to advise members what their position would be if the Plan had to be wound up. At 30 June 2012 the estimated amount identified by the Plan actuary, which might be sufficient to secure all members benefits with an insurance company if the Plan had wound up, was approximately 3,868 million. This would leave a shortfall of 1,500 million. The solvency basis is the measure which estimates how much an insurance company would require in order to take over responsibility for the payment of all the Plan s benefits. Due to a number of factors, this is a very high amount and so there is a large shortfall on this measure. The shortfall is, in fact, the amount the employers would be required to pay into the Plan if the Plan was to be wound up. 22

23 Valuation Talk incorporating the Summary Funding Statement for the period ending 30 June 2013 (continued) Pensions Regulator The Pensions Regulator has closely monitored the progress of the valuation discussions and has been informed of the final agreed Recovery Plan. At the date of issue of ValuationTalk, the Pensions Regulator has made no directions or imposed any schedule of contributions against the Plan. Pension Protection Fund A few years ago the Government set up the Pension Protection Fund (PPF) to pay benefits to members of Final Salary pension schemes in circumstances where the scheme is wound up and the scheme and the participating employers do not have enough money to cover the cost of buying all members benefits with an insurance company. In these circumstances, the pension benefits you would receive from the PPF may be less than the full benefit you have earned in the Plan, depending on your age and when your benefits were earned. Payments to Lafarge There has not been any payment to Lafarge or any participating employer out of Plan assets in the year to 30 June 2012 or the year to 30 June The importance of Lafarge s support The Trustee s objective is to have enough money in the Plan to provide full pensions now and in the future. However, the success of the Plan relies on Lafarge continuing to support the Plan because: The funding level can fluctuate as a result of changes in investment conditions and, where there is a funding shortfall at a valuation, Lafarge will need to put in more money; and The target funding level may turn out to be too low when the next valuation is conducted for instance as a result of improved life expectancy so that more money would need to be put in if more money would need to be put in if benefits are to be provided in full. A bit of detail: the Sectionalisation of the Plan When the former Blue Circle and Lafarge Redland schemes merged in October 2003 there was a continuing requirement to identify the assets and the liabilities of both groups of members in the sections separately. In effect, the Trustee had to carry out two valuations, one for each section. Until the 2009 valuation, there were only slight variations between the two sections. At the 2009 valuation, as the two sections matured at different rates, the variations were more marked and some of the outcomes were therefore different. For the 2012 valuation, the funding levels of the two sections have come closer together again. The Lafarge Redland section has a funding level calculated on the ongoing basis of 78.8% (a shortfall of 21.2%) while the other section, formed mainly of former Blue Circle members, has a funding level of 77.8% (i.e. a shortfall of 22.2%). The payments due under the Recovery Plan will be apportioned between the two sections, with the aim that the Plan will achieve full funding in both sections at the same time, in approximately 15 years. Update Since the valuation date in 2012, financial market conditions have improved, the investments for the Plan have grown and the value of the liabilities has remained around the same. The Plan actuary has completed the annual update of the funding position as at 30 June The Plan s funding level has improved from 78.2% to 81.5% and the deficit/shortfall has reduced from 660 million to 567 million. Indicators are that the funding level had improved further by the end of Where can I find out more? You can request details of the deficit contributions from the Pensions team in Dorking. The following documents will also be made available on the Plan website ( in due course: The Statement of Funding Principles The Recovery Plan The Schedule of Contributions 23

24

25 25

26 26

27 27

28 28

29 29

30 30

31 31

32 32

33 33

34 34

35 35

36

37 INVESTMENT REPORT FOR THE YEAR ENDED 30 JUNE 2014 INVESTMENTS ATTRIBUTABLE TO THE FINAL PAY SECTION Investment Arrangements To recognise the increasing maturity of the Plan s liabilities, the Trustee has aimed to decrease the allocation to return seeking assets such as equities, and increase the allocation to liability matching assets, such as bonds. The long term strategy is to be fully funded on a self sufficient basis such that the Plan s assets match or closely match its liabilities. To help facilitate this strategy with effect from 1 July 2013 the Trustee appointed Towers Watson Limited under a Discretionary Fiduciary Management and Investment Advisory Services Agreement to be responsible for investing the assets of the Final Pay Section. Towers Watson s appointment is twofold; to advise the Trustee on an appropriate investment strategy and once agreed by the Trustee to implement the strategy under its fiduciary mandate. The Trustee initially tasked Towers Watson to manage the Plan's investments with the objective to outperform a composite benchmark whilst reducing levels of investment risk. From 1 April 2014 the Trustee has tasked Towers Watson with managing the assets relative to the Plan s liabilities, focusing on improving the Plan s funding position rather than simply outperforming a composite benchmark. This objective is consistent with a maturing pension scheme seeking to derisk its portfolio as it moves towards being fully funded on a selfsufficient basis i.e. such that the Plan s assets match or closely match its liabilities without need for recourse to the sponsoring employers for funding. The change in objective resulted in a major restructure of the Plan s assets during As part of this process BlackRock was employed as a transition manager to assist in the restructure of the Plan s legacy assets and to release cash to fund new investments. During the last 12 months, the Plan s assets were restructured with two key aims in mind: 1. To adopt a longterm approach to ensure all future benefit payments to members can be met 2. To diversify the portfolio away from an overreliance on individual asset types such as equities. The final structure of the Plan s assets comprises five main sections as set out below. Within each section Towers Watson selected a range of investment managers chosen for their skill and experience in their particular sector to maximise the investment efficiency (risk enhancing or risk mitigating) of the Plan s investments. Beta: This section represents exposure to equity and property markets around the world. Investment managers are picked for their ability to outperform underlying markets. Diversification (Alternatives): To reduce the overall risk of the portfolio, this section invests in nontraditional asset classes such as commodities and insurance, which are not subject to the same volatility as equity markets. Private markets (Private Equity and Infrastructure): The Plan can afford to tie an amount of money up for a number of years and be compensated for such a commitment to illiquid assets such as private equity and infrastructure. Credit: Providing capital to Governments and all types of companies allows the Plan to gain a premium for lending and assuming the risk of potential default. Such a risk is managed by constructing a diversified portfolio and employing skilful managers with significant analytical expertise to avoid defaulters. Bonds/Liability Driven Investment: This section is made up of a portfolio of highquality government bonds and financial derivatives which move in line with the Plan s liabilities as they change in value due to changes in inflation and interest rates. Towers Watson is overseen by both the Investment Committee and the Trustee. Its fiduciary mandate is governed by a series of Investment Guidelines set out in the Agreement. KPMG assists the Investment Committee by monitoring Towers Watson against a number of Key Performance Indicators and reports on a quarterly basis. As required by the Pensions Act, the Trustee has prepared and maintained a Statement of Investment Principles. This is modified from time to time to reflect the changes required by legislation and changes in investment policy. 37

38 Employer related investments LAFARGE UK PENSION PLAN INVESTMENT REPORT FOR THE YEAR ENDED 30 JUNE 2014 The SIP ensures there are strict limitations to the extent that the Fund may be invested in Lafarge SA, the principal employer. At 31 March 2014 the Plan s investments in Lafarge SA amounted to 18, ( % of the Fund). How the Plan s Assets are Invested Throughout the year the Plan maintained a wide spread of investments. Note 11 provides an analysis of the Plan s investments and other assets at 30 June As at 30 June 2014, the Plan s investment strategy was structured as follows: Beta 20% Private Markets 7% Credit 25% Diversification 13% Bonds/Liability Driven Investment 35% The Plan had also hedged approximately 55% of the Plan s fixed and inflation linked liabilities. Investment Manager fees As Fiduciary manager, Towers Watson has invested the Plan s assets in a number of pooled investment funds and segregated portfolios. The management fees for these investment vehicles are calculated on sliding scales based on the market value of assets invested. For vehicles which include derivatives (Liability Driven Investments and currency hedging instruments), the management fee is calculated based on the notional value of exposure traded. These managers operate a 'clean fee' basis (i.e. direct fee only) and they do not derive additional income from commissions on dealing and indirect charges. BNP Paribas Real Estate are remunerated by fixed fees for property management and transaction based fees for purchases, sales and rent reviews. The fees for property management and for rent reviews are deducted from rental income and are shown in note 9 of the accounts. The transaction based fees for purchases and sales are reflected in the change of market values. For the year ended 30 June 2014 BNP Paribas Real Estate transaction based fees for sales and purchases amounted to 18,500 (2013: 68,500). Towers Watson is remunerated by a fixed fee of 2,795,000 to 30 June The total Plan investment management fees were 12.1m for the year (2013: 7.3m). See note 9 on page 16 for further detail. Investment Performance At the start of 2014, BNY Mellon was appointed as an independent performance measurer replacing the WM Company. The performance measurer is responsible for calculating the performance of each underlying portfolio and fund held by the Plan as well as performance at the total asset level. During the last 12 months the Plan has been in transition and with the changes to the Plan s investment strategy, it was agreed that performance at a total asset level should be compared against a return based on the Plan s liabilities ( Liability Proxy Return ) as the legacy benchmark was not reflective of the Plan s current assets, or the future strategy of the Plan. 38