33. Provisions for post-employment benefits plans and similar obligations

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€ million

30/9/2015

30/9/2016

Provisions for post-employment benefits plans (employer’s commitments)

699

781

Provisions for indirect commitments

392

441

Provisions for voluntary pension benefits

1

1

Provisions for company pension plans

111

117

Provisions for obligations similar to pensions

66

73

 

1,270

1,414

Provisions for post-employment benefits plans are recognised in accordance with IAS 19 (Employee Benefits).

Provisions for post-employment benefits plans 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 (contribution-oriented commitments pursuant to German company pension law), which comprise a payment contribution component and an employer-matching component. Contributions are paid to a pension reinsurance from which benefits 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 start of retirement 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.

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 deficient cover. These measures include the requirement for additional contributions by the employer and curtailments 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. A major share of these commitments was fully funded through a buy-in. 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 the 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.

Switzerland

In Switzerland, the Federal Act on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG) requires employers to provide occupational pension insurance coverage for their employees. BVG provides for statutory minimum benefits in the form of defined contribution plans with a guaranteed rate of interest and specified minimum contributions. The contributions, which are determined as a percentage of insured wages, are paid into a pension fund. Upon retirement, the contributions are converted into benefits based on conversion rates. The occupational pension plans are open to new members. The legal form of the pension fund is a foundation.

Occupational pension plans in Switzerland are accounted for as defined benefit plans. METRO GROUP grants employees in Switzerland pension entitlements that go beyond the statutory minimum entitlement.

Belgium

There are both retirement pensions and capital commitments; the amount depends on the pensionable length of service and pensionable income. In addition, groups of employees are granted interim allowances. In principle, benefits are funded through group insurance contracts that are subject to Belgian regulatory law.

Additional retirement plans are shown cumulatively under other countries.

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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%

30/9/2015

30/9/2016

Germany

60

56

Netherlands

18

21

United Kingdom

10

10

Switzerland

4

5

Other countries

8

8

 

100

100

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

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%

30/9/2015

30/9/2016

Germany

28

22

Netherlands

43

48

United Kingdom

19

20

Switzerland

8

8

Other countries

2

2

 

100

100

The above 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 average assumptions regarding the material parameters were used in the actuarial valuation:

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30/9/2015

30/9/2016

 

 

 

 

 

 

 

 

 

 

 

%

Germany

Nether- lands

United Kingdom

Switzer­land

Other countries

Germany

Nether- lands

United Kingdom

Switzer­land

Other countries

Actuarial interest rate

2.20

2.70

3.90

1.00

2.50

1.20

1.70

2.40

0.15

1.55

Inflation rate

1.50

1.00

2.50

0.00

2.00

1.50

0.90

2.00

0.00

1.90

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 taking account 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 Heubeck. In the process, modified mortality tables were used. For beneficiaries who did not make use of the option to settle their benefit entitlements through a lump sum capital payment, the mortality rates in table 2005 G have been reduced for the next four years, with a linear decline in the reduction from an initial value of 80 per cent to 0 per cent in year 5. 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 considered possible within reason. Stress tests or worst-case scenarios, in contrast, are not part of the sensitivity analysis. The selection of the respective spectrum of possible changes in parameters is based on historical multi-year observations. This almost exclusive reliance on historical data to derive possible future developments represents a methodical constraint.

The following illustrates the impact of an increase/decrease 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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30/9/2015

30/9/2016

 

 

 

 

 

 

 

 

 

 

 

 

€ million

 

Germany

Nether­lands

United Kingdom

Switzer­land

Other countries

Germany

Nether­lands

United Kingdom

Switzer­land

Other countries

Actuarial interest rate

Increase by 100 basis points

−135.30

−77.30

−36.70

−12.70

−14.50

−147.20

−104.30

−38.80

−15.80

−17.60

Decrease by 100 basis points

164.20

105.90

48.10

16.80

17.00

184.20

145.60

50.40

21.20

20.40

Inflation rate

Increase by 25 basis points

31.50

12.50

6.40

2.30

0.10

33.60

16.80

4.20

3.00

0.10

Decrease by 25 basis points

−30.40

−12.00

−5.70

−0.10

−32.20

−16.10

−4.10

−2.80

−0.10

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 investment forms. 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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30/9/2015

30/9/2016

 

%

€ million

%

€ million

Fixed-interest securities

37

406

45

500

Shares, funds

19

208

20

228

Real estate

20

213

7

83

Other assets

24

263

28

309

 

100

1,090

100

1,120

Fixed-interest securities, shares and funds are regularly traded in active markets. As a result, the relevant market prices are available. The asset category “fixed-interest securities” includes only 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 in an active market. These are primarily used by METRO GROUP itself. The decline results from a sale effected during the course of financial year 2015/16.

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

The actual return on plan assets amounted to €144 million in the reporting period (2014/15: €76 million).

For financial year 2016/17, the company expects employer payments to external pension providers totalling approximately €20 million and employee contributions of €11 million in plan assets, with contributions in the Netherlands and Germany 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 have developed as follows:

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€ million

2014/15

2015/16

Present value of defined benefit obligations

 

 

As of the beginning of the period

2,708

2,235

Recognised under pension expenses through profit or loss

104

62

Interest expenses

73

53

Current service cost

36

27

Past service cost (incl. curtailments and changes)

−3

24

Settlement expenses

−2

−42

Recognised outside of profit or loss under remeasurement of defined benefit pension plans in other comprehensive income

−104

354

Actuarial gains/losses from changes in

 

 

demographic assumptions (−/+)

−30

34

financial assumptions (−/+)

−54

314

experience-based correction (−/+)

−20

6

Other effects

−473

−221

Benefit payments (incl. tax payment)

−143

−203

Contributions from plan participants

13

16

Change in consolidation group / transfers

−361

1

Currency effects

18

−35

As of end of period

2,235

2,430

The capital option compensation programme conducted in Germany for current pensions led to a reduction in the present value of defined benefit obligations by €120 million, of which €42 million was recognised as income in the income statement. The payment totalled €78 million, with the related decline in plan assets amounting to €43 million.

Changes in actuarial parameters led to a total increase in the present value of defined benefit obligations of €354 million (previous year: reduction by €104 million).

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

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Years

30/9/2015

30/9/2016

Germany

11

12

Netherlands

22

24

United Kingdom

19

19

Switzerland

15

16

Other countries

9

9

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

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%

30/9/2015

30/9/2016

Active members

24

25

Former claimants

22

26

Pensioners

54

49

The fair value of plan assets developed as follows:

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€ million

2014/15

2015/16

Change in plan assets

 

 

Fair value of plan assets as of beginning of period

1,105

1,090

Recognised under pension expenses through profit or loss

31

28

Interest income

31

28

Recognised outside of profit or loss under remeasurement of defined benefit pension plans in other comprehensive income

45

116

Gains/losses from plan assets excl. interest income (+/−)

45

116

Other effects

−91

−114

Benefit payments (incl. tax payments)

−77

−73

Settlement payments

−9

−43

Employer contributions

21

20

Contributions from plan participants

13

16

Change in consolidation group / transfers

−57

0

Currency effects

18

−34

Fair value of plan assets as of end of period

1,090

1,120

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€ million

30/9/2015

30/9/2016

Financing status

 

 

Present value of defined benefit obligations

2,235

2,430

Fair value of plan assets

−1,090

−1,120

Asset adjustment (asset ceiling)

59

30

Net liability / assets

1,204

1,340

thereof recognised under provisions

1,204

1,340

thereof recognised under net assets

0

0

At one Dutch 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 €30 million was recognised in other comprehensive income (30/9/2015: €59 million).

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

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€ million

2014/15

2015/16

1

Netted against employees’ contributions

Current service cost1

36

27

Net interest expenses

42

27

Past service cost (incl. curtailments and changes)

−3

24

Settlements

−2

−42

Other pension expenses

0

1

Pension expenses

73

37

In addition to expenses from defined benefit pension commitments, expenses for payments to external pension providers relating to defined contribution pension commitments of €273 million (2014/15: €271 million) were recorded. These figures also include payments to statutory pension insurance.

Media-Saturn 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 a shortfall, Media-Saturn Netherlands would be obliged to compensate for this by making higher contributions to this fund in the 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 245,000 employees. Media-Saturn Netherlands currently makes contributions to this plan for 5,860 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, 21.6 per cent from 2017), with employees assuming part of the contributions for salaries above €12,577 and no contributions being paid for salaries above €52,763. In financial year 2016/17, contributions to the Bedrijfspensioenfonds voor de Detailhandel fund are expected to total approximately €8 million. In September 2016, the coverage ratio stood at 104.9 per cent (September 2015: 103.7 per cent).

The provisions for obligations similar to pensions essentially comprise commitments from employment anniversary allowances, death benefits and partial retirement plans. Provisions amounting to €73 million (30/9/2015: €66 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.