32. Provisions for pensions and similar obligations

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€ million

30/9/2013

30/9/2014

Pension provisions (employer’s commitments)

769

853

Provisions for indirect commitments

547

631

Provisions for voluntary pension benefits

6

6

Provisions for company pension plans

112

116

Provisions for obligations similar to pensions

76

77

 

1,508

1,684

Pension provisions are recognised in accordance with IAS 19 (Employee Benefits).

Pension provisions consist of commitments primarily related to benefits defined by the provisions of company pension plans. These take the form of defined benefit plans directly from the employer (employer’s commitments) and defined benefit plans from external providers (benevolent funds in Germany and international pension funds). The external providers’ assets serve exclusively to finance the pension entitlements and qualify as plan assets. The benefits under the different plans are based on performance and length of service. The length-of-service benefits are provided on the basis of fixed amounts.

The most important performance-based pension plans are described in the following.

Germany

METRO GROUP grants many employees in Germany retirement, disability and surviving dependant’s benefits. New commitments are granted in the form of “defined benefit” commitments in the meaning of IAS 19 (Employee Benefits), which comprise a payment contribution component and an employer-matching component. Contributions are paid to a pension reinsurance from which contributions are paid out when the insured event occurs. A provision is recognised for entitlements not covered by reinsurance.

In addition, various pension funds exist that are closed for new contributions. In general, these provide for lifelong pensions starting with the statutory retirement age or recognised invalidity. Benefits are largely defined as fixed payments or on the basis of set annual increases. In special cases, benefits are calculated in consideration of accrued statutory pension entitlements. These commitments provide for a widow’s or widower’s pension of varying size depending on the benefits the former employee received or would have received in case of invalidity. Legacy commitments are partially covered by assets held in benevolent funds. Provisions are recognised for those commitments not covered. The benevolent funds’ decision-making bodies (management board and general assembly of members) comprise both employer and employee representatives. The management board decides on the deployment of funds and financial investments. It may commission third parties to manage fund assets. No statutory minimum endowment obligations exist. Insofar as pledged benefits cannot be paid out of the benevolent fund assets, the employer is obliged to directly assume these payments (subsidiary liability).

Netherlands

A defined benefit pension plan exists in the Netherlands and foresees pension payments in addition to invalidity and death benefits. The amount of the benefits depends on the pensionable salary per year of service. Benefits are funded through a pension fund whose decision-making bodies (management board, as well as administration, finance and investment committee) include employer and employee representatives. The fund’s executive committee has responsibility for asset management. The pension fund’s investment committee exists for this purpose. In line with statutory minimum funding requirements, the pension fund’s executive committee must ensure that commitments are covered by assets at all times. In case of underfunding, the pension fund’s executive committee may take different measures to compensate for this. These measures include the requirement for additional contributions by the employer and cutbacks in employee benefits.

In addition, another defined benefit plan exists in the Netherlands that is recognised as a defined contribution plan (multi-employer plan).

United Kingdom

In July 2012, METRO GROUP sold its cash-and-carry business in the United Kingdom to Booker Group PLC. Pension commitments were not part of the sale. Since the date of the sale, only vested benefits and current pensions from service years at METRO GROUP exist. In accordance with legal stipulations, the vested interests must be adjusted for inflation effects. The commitments are covered by assets which are managed and invested by a corporate trustee. The executive committee of this corporate trustee consists of employer and employee representatives. In any case, the trustee must ensure that benefits can be paid at all times in future. This is regulated on the basis of statutory minimum financing requirements. In case of underfunding, the trustee may require additional employer contributions to close the funding gap.

Belgium

There are both retirement pensions as well as capital commitments whose size depends on the pensionable length of service and pensionable income. In addition, benefits are paid to employees aged 58 and older who become unemployed. In principle, benefits are funded through group insurance contracts that are subject to Belgian regulatory law.

Considered individually, other retirement plans are immaterial and are shown cumulatively under “rest of the world”.

The following table provides an overview of the present value of defined benefit obligations by METRO GROUP countries as well as material obligations:

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%

30/9/2013

30/9/2014

Germany

67

66

Netherlands

15

16

United Kingdom

7

7

Belgium

3

3

Rest of the world

8

8

 

100

100

The plan assets of METRO GROUP are distributed proportionally to the following countries:

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%

30/9/2013

30/9/2014

Germany

36

32

Netherlands

36

39

United Kingdom

15

17

Belgium

5

5

Switzerland

8

7

 

100

100

The above pension commitments are valued on the basis of actuarial calculations in accordance with IAS 19. The basis for the valuation are the legal, economic and tax circumstances prevailing in each country.

The following material parameters are used in the actuarial valuation:

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30/9/2013

30/9/2014

 

 

 

 

 

 

 

 

 

 

 

%

Germany

Nether­lands

United Kingdom

Belgium

Rest of the world

Germany

Nether­lands

United Kingdom

Belgium

Rest of the world

Actuarial interest rate

3.35

3.75

4.50

3.35

3.27

2.60

2.70

4.20

2.60

2.60

Inflation rate

2.00

2.00

2.60

2.00

2.03

2.00

2.00

2.50

2.00

1.92

As in previous years, METRO GROUP used generally recognised methods to determine the actuarial rate of interest. With these, the respective actuarial rate of interest based on the yield of investment grade corporate bonds is determined as of the closing date in consideration of the currency and maturity of the underlying obligations. The actuarial rate of interest for the eurozone and the UK is based on the results of a method applied in a uniform manner across the group. The interest rate for this is set on the basis of the returns of high-quality corporate bonds and the duration of commitments. In countries without a liquid market of suitable corporate bonds, the actuarial interest rate was determined on the basis of government bond yields.

Aside from the actuarial interest rate, the inflation rate represents another key actuarial parameter. In the process, the nominal rate of wage and salary increases was determined on the basis of expected inflation and a real rate of increase. In Germany, the rate of pension increases is derived directly from the inflation rate insofar as pension adjustments can be determined on the basis of the increase in the cost of living. In international companies, pension adjustments are also generally determined on the basis of the inflation rate.

The extent of other, non-essential parameters used to determine pension commitments corresponds to the long-term expectations of METRO GROUP. The impact of changes in fluctuation and mortality assumptions was analysed for major plans. Calculations of the mortality rate for the German group companies are based on the 2005 G tables from Prof. Dr Klaus Heubeck. The actuarial valuations outside of Germany are based on country-specific mortality tables. The resulting effects of fluctuation and mortality assumptions have been deemed immaterial and are not listed as a separate component.

The following is a sensitivity analysis for the key valuation parameters with respect to the present value of pension entitlements. The actuarial rate of interest and the inflation rate were identified as key parameters with an impact on the present value of pension entitlements. In the context of the sensitivity analysis, the same methods were applied as in the previous year. The analysis considered changes in parameters that are appropriately considered possible. Stress tests or worst-case scenarios, in turn, are not part of the sensitivity analysis. The selection of the respective spectrum of possible changes in parameters is based on historic multi-year observations. This almost exclusive reliance on historic data to derive possible future developments represents a methodical constraint.

The following illustrates the impact of an increase/decline in the actuarial rate of interest by 100 basis points or an increase/decrease in the inflation rate by 25 basis points:

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30/9/2013

30/9/2014

 

 

 

 

 

 

 

 

 

 

 

 

€ million

 

Germany

Nether­lands

United Kingdom

Belgium

Rest of the world

Germany

Nether­lands

United Kingdom

Belgium

Rest of the world

Actuarial interest rate

Increase by 100 basis points

−178.30

−64.80

−27.30

−4.00

−17.90

−202.50

−84.80

−32.60

−4.90

−20.20

Decrease by 100 basis points

221.00

87.50

35.90

4.40

20.70

253.30

116.20

42.90

5.60

24.60

Inflation rate

Increase by 25 basis points

41.90

14.60

4.40

47.40

14.10

5.60

Decrease by 25 basis points

−40.30

−13.70

−4.90

−45.40

−13.50

−5.10

The granting of defined benefit pension entitlements exposes METRO GROUP to various risks. These include general actuarial risks resulting from the valuation of pension commitments (for example, interest rate risks) as well as capital and investment risks related to plan assets.

With a view to the funding of future pension payments from indirect commitments and a stable actuarial reserve, METRO GROUP primarily invests plan assets in low-risk investments. The funding of direct pension commitments is secured through operating cash flow at METRO GROUP.

The fair value of plan assets by asset category can be broken down as follows:

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30/9/2013

30/9/2014

 

%

€ million

%

€ million

Fixed-interest securities

47

481

37

407

Shares, funds

27

264

21

231

Real estate

13

137

16

177

Other assets

13

137

26

290

 

100

1,019

100

1,105

Fixed-interest securities, shares and funds are regularly traded on active markets. As a result, the relevant market prices are available. The asset category “fixed-interest securities” only includes investments in investment grade corporate bonds, government bonds and mortgage-backed bonds (Pfandbriefe). Risk within the category “shares, funds” is minimised through geographic diversification.

Real estate assets are not traded on an active market. These are primarily used by METRO GROUP itself.

Other assets essentially comprise receivables from insurance companies in Germany, Switzerland and Belgium. All of these are first-rate insurance companies.

The actual gain from plan assets amounted to €30 million in the reporting period (12M 2012/13: €48 million; 9M 2013: €32 million).

In financial year 2013/14, pension reinsurance polices were taken out in the United Kingdom to largely cover the risks arising from pension obligations. For these pension reinsurance policies, plan assets in the form of shares and fixed-interest securities with a present value of €147 million were exchanged. In addition, a cash payment of €85 million was made. The transaction resulted in valuation effects totalling €75 million, which were recognised in other comprehensive income. As of the closing date, €40 million in pension obligations not covered by pension reinsurance were recognised for the United Kingdom and are backed by plan assets in the form of fixed-interest securities totalling €31 million.

For the financial year 2014/15, the company expects employer payments to external pension providers totalling approx. €21 million and employee contributions of €12 million in plan assets, with contributions in the Netherlands accounting for the major share of this total. Expected contributions from payment contribution commitments in Germany are not included in expected payments.

Changes in the present value developed as follows:

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€ million

9M 2013

12M 2012/13

12M 2013/14

Present value of defined benefit obligations

 

 

 

As of the beginning of the period

2,467

2,427

2,442

Interest expenses

62

87

83

Service cost (incl. employee contributions)

33

43

42

Past service cost (incl. curtailments and changes)

−1

−13

7

Benefit payments (incl. tax payment)

−96

−128

−126

Settlement payments

−7

−7

−4

Actuarial gains/losses from demographic assumptions (−/+)

0

3

3

Actuarial gains/losses from financial assumptions (−/+)

7

55

274

Actuarial gains/losses from experience-based adjustments (−/+)

−16

−14

−28

Change in consolidation group

0

0

0

Currency effects

−7

−11

15

As of end of the period

2,442

2,442

2,708

The weighted average term of defined benefit commitments for the countries with material pension obligations amounts to:

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Years

30/9/2013

30/9/2014

Germany

13

13

Netherlands

21

22

United Kingdom

19

19

Belgium

6

6

Rest of the world

11

11

The present value of defined benefit obligations can be broken down as follows based on individual groups of eligible employees:

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%

30/9/2013

30/9/2014

Active member

30

30

Former claimants

15

18

Pensioners

55

52

The fair value of plan assets developed as follows:

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€ million

9M 2013

12M 2012/13

12M 2013/14

Change in plan assets

 

 

 

Fair value of plan assets as of beginning of period

1,029

1,024

1,019

Return on plan assets

26

38

36

Return/loss on plan assets, excluding the amount included in interest income (+/−)

6

10

−6

Settlement payments

−7

−7

0

Benefit payments (incl. tax payment)

−58

−77

−77

Employer contributions

19

25

107

Contributions from plan participants

8

11

12

Change in consolidation group

0

0

0

Currency effects

−4

−5

14

Fair value of plan assets as of end of period

1,019

1,019

1,105

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€ million

 

30/9/2013

30/9/2014

Financing status

 

 

 

Present value of defined benefit obligations

 

2,442

2,708

Fair value of plan assets

 

−1,019

−1,105

Commitments measured based on local criteria

 

1

0

Asset adjustment (asset ceiling)

 

4

2

Net liability/assets

 

1,428

1,605

Recognised assets pursuant to IAS 19.64

 

4

2

Provisions for retirement benefits as of end of period

 

1,432

1,607

At one Swiss company, plan assets exceeded the value of commitments as of the closing date. Since the company cannot draw any economic benefits from this overfunding, the balance sheet amount was reduced to €0 in line with IAS 19.64 (b). The change in the effect of the asset ceiling of approximately €2 million was recognised as expenses in other comprehensive income. In addition, a surplus exists in a defined benefit plan in Belgium. An asset adjustment is not necessary here.

The pension expenses of the direct and indirect company pension plans can be broken down as follows:

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€ million

9M 2013

12M 2012/13

12M 2013/14

1

Netted against employees’ contributions

Current service cost1

25

32

30

Net interest expenses

36

49

47

Past service cost (incl. curtailments and changes)

−1

−13

9

Settlements

0

0

−2

Pension expenses

60

68

84

In addition to expenses from defined benefit commitments, expenses for payments to external pension providers relating to defined contribution pension commitments of €49 million (12M 2012/13: €54 million; 9M 2013: €40 million) were recorded.

Media-Saturn in the Netherlands participates in a multi-employer plan classified as a defined benefit plan. However, it is administered by a fund that is not able to provide sufficient information to allow it to be accounted for as a defined benefit plan. Therefore, it is treated as a defined contribution plan in accordance with IAS 19.34 and IAS 19.148. This is a typical, strictly regulated Dutch pension plan. In case of deficient coverage, Media-Saturn Netherlands would be obliged to compensate this deficient coverage by making higher contributions to this fund in future. These higher contributions would then apply to all participating companies. Media-Saturn cannot be held liable for these commitments by other companies. Approximately 28,000 companies in the retail industry participate in this plan and make contributions for a total of more than 238,000 employees. Media-Saturn Netherlands currently makes contributions to this plan for 5,703 employees. Contributions are calculated for five years (currently from 2012 to 2016). These correspond to a set percentage of an employee’s salary (currently 19.4 per cent), with employees assuming part of the contributions for salaries above €12,561 and no contributions being paid for salaries above €51,414. In financial year 2014/15, contributions to the “Bedrijfspensioenfonds voor de Detailhandel” fund are expected to total approximately €7 million. In September 2014, the coverage ratio stood at 114 per cent.

The provisions for obligations similar to pensions essentially comprise commitments from employment anniversary allowances, death benefits and pre-retirement part-time plans. Provisions amounting to €77 million (30/9/2013: €76 million) were formed for these commitments. The commitments are valued on the basis of actuarial expert opinions. In principle, the parameters used are identical to those employed in the company pension plan.