Annual Report 2019

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38 Provisions

 

Dec. 31, 2018

Dec. 31, 2019

in € million

non-current

current

non-current

current

 

 

 

 

 

Provisions for pensions and similar obligations

520.6

569.9

Provisions for taxes (current income taxes excl. deferred taxes)

180.3

211.1

Other provisions

 

 

 

 

Environmental remediation

14.8

0.2

13.0

Personnel obligations

60.2

66.6

61.7

71.8

Outstanding trade invoices

61.7

109.8

Miscellaneous other provisions

21.1

141.7

17.8

137.5

Total other provisions

96.1

270.2

92.5

319.1

Total provisions

616.7

450.5

662.4

530.2

 

 

 

 

 

Provisions for Pensions and Similar Obligations

Accounting Policies

When valuing the provisions for pensions, the company pension obligations are determined using the projected unit credit method pursuant to IAS 19 “Employee Benefits,” whereby current pensions and vested pension rights as of the reporting date as well as expected future increases in salaries and pensions are included in the valuation. An actuarial valuation is performed at every reporting date.

The amount shown in the balance sheet is the total present value of the defined benefit obligations (DBO) after offsetting against the fair value of the plan assets.

Actuarial gains and losses are accounted for in full in the period in which they occur and recognized in retained earnings as a component of other comprehensive income and not in profit or loss. The actuarial gains and losses are also no longer recognized with effect on net income in subsequent periods.

Service cost is shown in personnel expenses. The service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the reporting period.

The interest expense is recognized in the financial result. Interest expense is the increase during a period in the present value of a defined benefit obligation that generally arises due to the fact that the benefit obligation is one period closer to being discharged.

Reinsurance contracts that qualify as plan assets have been taken out to cover the pension obligations toward particular individuals. Where the value of those reinsurance contracts exceeds the related pension obligations, the excess is recognized as an asset and shown under other assets.

Obligations from joint defined benefit multi-employer plans at Versorgungsanstalt des Bundes und der Länder (VBL), a pension scheme operated by the German federal government and the German states, are stated, in line with IAS 19.34, in the same way as obligations from defined contribution plans, insofar as the information required for the statement of defined benefit plans is not available. The obligations are based on the amounts to be paid for the current period.

Vonovia has pension obligations toward various employees which are based on the length of service. Defined benefit and defined contribution obligations – for which Vonovia guarantees a certain level of benefit – are financed through provisions for pensions. Vonovia has taken out reinsurance contracts for individual people.

Generally, they are pension benefits that depend on the final salary with percentage increases depending on the number of years of service.

The pension commitments cover 3,866 (Dec. 31, 2018: 4,003) eligible persons.

Executives currently working for companies belonging to Vonovia have the opportunity to participate in the “Pension Instead of Cash Remuneration” model (Versorgungsbezüge anstelle von Barbezügen) in the version dated October 2003 (eligible persons: 306). Retirement, invalidity and surviving dependent benefits in the form of a lifelong pension are offered under this deferred compensation model. The retirement benefits can also be paid out as a one-time capital sum.

The 2002 pension scheme (VO 2002) for Vonovia employees replaces the pension systems that existed until December 31, 2001 (eligible persons: 722). For employees who joined the company prior to 1991, existing claims arising from the previous pension commitment as of December 31, 2001, are protected in the form of a status of possession. After this point, these employees acquire rights to future pension benefits in accordance with VO 2002. With the introduction of VO 2002, the pension regulations for employees joining the company after 1990 was updated with regard to changes in legislation and court rulings. Pension components acquired before the date VO 2002 replaced the previous pension systems remain in existence. As part of VO 2002, retirement, invalidity and surviving dependent benefits are provided in the form of lifelong pensions. The pension is calculated as the sum of annually acquired pension components that form a fixed percentage of salary. Salary components exceeding the income limit for the assessment of contributions to statutory pension insurance are weighted in a quadruple manner. For new pension commitments beginning in 2002, a pension guarantee of 1.0% p. a. is provided. For all other employees, the provisions of Section 16 of the German Occupational Pensions Improvement Act (BetrAVG) apply.

The following overview summarizes the most important basic data of the closed pension plans:

 

VO 1 Veba Immobilien

VO 91 Eisenbahnges.

Bochumer Verband

 

 

 

 

Type of benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Pensionable remuneration

Final salary

Final salary

Not applicable

Max. pension level

 

 

 

Remuneration up to state pension assessment limit

25%

27%

Depends on individual grouping

Remuneration in excess of state pension assessment limit

25%

72%

 

Total pension model based on final salary

Yes

Yes

No

Net benefit limit incl. state pension

None

90%

None

Gross benefit limit

70%

None

None

Adjustment of pensions

Section 16, (1,2) BetrAVG

Section 16, (1,2) BetrAVG

Adjustment every 3 years by Bochumer Verband (Management Board resolution)

Supplementary periods

Age of 55

None

Age of 55 (half)

Legal basis

Works agreement

Works agreement

Commitment to executives in individual contracts

Number of eligible persons

290

377

410

 

 

 

 

 

VO 60 Eisenbahnges.

Viterra commitment to Management Board members (with plan assets)

VO guideline Gagfah M

 

 

 

 

Type of benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Retirement, invalidity and surviving dependent benefits

Pensionable remuneration

Final salary

Final salary

Final salary

Max. pension level

 

 

 

Remuneration up to state pension assessment limit

48%

75%

No

Remuneration in excess of state pension assessment limit

48%

75%

No

Total pension model based on final salary

Yes

No

Yes

Net benefit limit incl. state pension

None

None

None

Gross benefit limit

75%

None

75%

Adjustment of pensions

Section 16, (1,2) BetrAVG

Annual according to development of cost of living

Section 16, (1,2) BetrAVG

Supplementary periods

None

None

Age of 55

Legal basis

Works agreement

Commitment to Management Board members in individual contracts

Works agreement

Number of eligible persons

126

6

319

 

 

 

 

 

VO 2017 VBL-Ersatzversorgung

 

 

 

 

 

 

Type of benefits

Retirement, invalidity and surviving dependent benefits

 

 

Pensionable remuneration

Yes

 

 

Max. pension level

Yes

 

 

Remuneration up to state pension assessment limit

No

 

 

Remuneration in excess of state pension assessment limit

No

 

 

Total pension model based on final salary

No

 

 

Net benefit limit incl. state pension

None

 

 

Gross benefit limit

None

 

 

Adjustment of pensions

1%

 

 

Supplementary periods

None

 

 

Legal basis

Individual agreement

 

 

Number of eligible persons

109

 

 

 

 

 

 

The current pensions according to the classic pension benefit regulations of Bochumer Verband are adjusted in line with Section 20 of those regulations. Section 20 is a rule which is based on Section 16 (1,2) of the German Occupational Pensions Improvement Act (BetrAVG) but which, according to a ruling of the Federal Labor Court of Germany, is an independent rule. Other company pensions are reviewed and adjusted under the terms of the agreement according to Section 16 (1,2) BetrAVG. On every review date, the development of the cost of living since the individual retirement date is reviewed and compensated for. Only in the aforementioned deferred compensation model is the option, available since January 1, 1999, used to raise the current pensions every year by 1% (Section 16 (3) No. 1 BetrAVG). No further risks are seen.

The company has decided to use the internal financing effect of the provisions for pensions and only to back a relatively small portion of the pension obligations with plan assets. Reinsurance policies have been taken out for former Management Board members against payment of a one-time insurance premium in order to provide additional protection against insolvency; these reinsurance policies were pledged to the eligible persons. They constitute plan assets, which are offset against the gross obligation. The fair value of the reinsurance policies for individual persons is higher than the extent of the obligations toward the respective person. This surplus of the fair values of the assets over the obligation is shown under non-current other assets. The conclusion of further reinsurance policies is not planned.

Pension plan obligations and the expenses necessary to cover these obligations are determined using the projected unit credit method prescribed by IAS 19. Both pensions known on the reporting date and vested rights as well as expected future increases in salaries and pensions are included in the measurement. The following actuarial assumptions were made at the reporting date – in each case related to the end of the year and with economic effect for the following year.

Actuarial Assumptions

in %

Dec. 31, 2018

Dec. 31, 2019

 

 

 

Actuarial interest rate

1.70

1.00

Pension trend

1.75

1.75

Salary trend

2.75

2.75

 

 

 

The 2018 G mortality tables of Prof. Dr. Klaus Heubeck have been taken for the biometric assumptions without any changes.

The defined benefit obligation (DBO) developed as follows:

in € million

2018

2019

 

 

 

DBO as of Jan. 1

535.0

541.8

Additions due to business combinations

4.3

Interest expense

8.9

9.0

Current service cost

10.6

10.9

Actuarial gains and losses:

 

 

Changes in the biometric assumptions

8.5

-5.1

Changes in the financial assumptions

59.3

Benefits paid

-25.5

-24.9

DBO as of Dec. 31

541.8

591.0

 

 

 

The present value of the defined benefit obligation is divided among the groups of eligible persons as follows:

in € million

2018

2019

 

 

 

Active employees

111.6

128.1

Former employees with vested pension rights

96.6

114.9

Pensioners

333.6

348.0

DBO as of Dec. 31

541.8

591.0

 

 

 

Plan assets comprise solely reinsurance contracts. The fair value of the plan assets has developed as follows:

in € million

2018

2019

 

 

 

Fair value of plan assets as of Jan. 1

22.4

22.3

Additions due to business combinations

0.3

Return calculated using the actuarial interest rate

0.4

0.4

Actuarial gains:

 

 

Changes in the financial assumptions

0.5

0.5

Benefits paid

-1.3

-1.4

Fair value of plan assets as of Dec. 31

22.3

21.8

 

 

 

The actual return on plan assets amounted to € 0.8 million during the fiscal year (2018: € 0.8 million).

The following table shows a reconciliation of the defined benefit obligation to the pension obligation recognized in the balance sheet:

in € million

Dec. 31, 2018

Dec. 31, 2019

*

Largely attributable to the “Viterra Management Board commitment” and “Gagfah Management Board commitment” pension plans.

 

 

 

Present value of funded obligations*

36.4

39.6

Present value of unfunded obligations

505.4

551.3

Total present value of defined benefit obligations

541.8

590.9

Fair value of plan assets*

-22.3

-21.8

Net liability recognized in the balance sheet

519.5

569.1

Other assets to be recognized

1.1

0.8

Provisions for pensions recognized in the balance sheet

520.6

569.9

In 2019, actuarial losses of € 53.7 million (excluding deferred taxes) were recognized in other comprehensive income.

The weighted average term of the defined benefit obligations is 15.8 years.

The following table contains the projected, undiscounted pension payments of the coming five fiscal years and the total of those in the subsequent five fiscal years:

in € million

Projected pension payments

 

 

2020

25.8

2021

25.1

2022

24.7

2023

24.4

2024

24.4

2025–2029

120.6

 

 

Sensitivity Analyses

An increase or decrease in the material actuarial assumptions would have led to the following DBO as of December 31, 2019, providing the other assumptions did not change:

in € million

 

DBO

 

 

 

Actuarial interest rate

Increase by 0.5%

547.5

 

Decrease by 0.5%

640.2

Pension trend

Increase by 0.25%

604.1

 

Decrease by 0.25%

577.4

 

 

 

An increase in life expectancy of 4.9% would have resulted in an increase in the defined benefit obligation of € 27.7 million as of December 31, 2019. This percentage rise corresponds to a one-year increase in the life expectancy of a man who was 65 at the reporting date.

If several assumptions are changed simultaneously, the cumulative effect is not necessarily the same as if there had been a change in just one of the assumptions.

The provisions for pensions include € 4.4 million (Dec. 31, 2018: € 4.7 million) for pension obligations which were transferred to third parties as part of an assumption of debt and which relate to vested rights and the payment of current pensions. A corresponding non-current receivable is shown under miscellaneous other assets.

Other Provisions

Accounting Policies

Other provisions are recognized when there is a present obligation, either legal or constructive, vis-à-vis third parties as a result of a past event if it is probable that a claim will be asserted and the probable amount of the required provision can be reliably estimated. Provisions are discounted if the resulting effect is material. The carrying amount of discounted provisions increases in each period to reflect the passage of time and the unwinding of the discount is recognized within interest expense. The discount rate is a pre-tax rate that reflects current market assessments.

Provisions for restructuring expenses are recognized when the Group has set up and communicated a detailed formal plan for restructuring and has no realistic possibility of withdrawing from these obligations.

Provisions for onerous contracts are recognized when the expected benefits from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is stated at the lower of the present value of the fulfillment obligation and the cost of terminating the contract, i. e., a possible indemnity or fine for breach or non-fulfillment of contract. Provisions are reviewed regularly and adjusted to reflect new information or changed circumstances.

The provisions for pre-retirement part-time work arrangements are basically to be classified as other long-term employee benefits that are to be accrued over the employees’ service periods.

The assets of the insolvency policy to secure fulfillment shortfalls arising from pre-retirement part-time work arrangements are offset against the amounts for fulfillment shortfalls contained in the provisions for pre-retirement part-time work arrangements.

A contingent liability is a possible obligation toward third parties that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events or a present obligation that arises from past events for which an outflow of resources is not probable or the amount of which cannot be estimated with sufficient reliability. According to IAS 37, contingent liabilities are not generally recognized.

Development of Other Provisions during the Fiscal Year

in € million

As of Jan. 1, 2019

Additions due to changes in scope of consolidation

Additions

Reversals

Interest accretion to provisions

Netting plan asset

Utiliza­tion

As of Dec. 31, 2019

 

 

 

 

 

 

 

 

 

Other provisions

 

 

 

 

 

 

 

 

Environmental remediation

15.0

-0.2

0.2

-2.0

13.0

Personnel obligations

126.8

70.3

-5.2

0.3

-58.7

133.5

Outstanding trade invoices

61.7

131.1

-8.0

-75.0

109.8

Miscellaneous other provisions

162.8

0.3

52.0

-12.3

0.8

-48.3

155.3

 

366.3

0.3

253.4

-25.7

1.3

-184.0

411.6

 

 

 

 

 

 

 

 

 

Development of Other Provisions during the Previous Year

in € million

As of Jan. 1, 2018

Additions due to changes in scope of consolidation

Additions

Reversals

Interest accretion to provisions

Netting plan asset

Utiliz­ation

As of Dec. 31, 2018

 

 

 

 

 

 

 

 

 

Other provisions

 

 

 

 

 

 

 

 

Environmental remediation

16.9

0.1

-2.0

15.0

Personnel obligations

127.5

3.7

47.4

-9.3

0.3

0.3

-43.1

126.8

Outstanding trade invoices

50.0

54.6

-8.7

-34.2

61.7

Miscellaneous other provisions

120.3

38.8

58.8

-21.6

0.1

-33.6

162.8

 

314.7

42.5

160.8

-39.6

0.5

0.3

-112.9

366.3

 

 

 

 

 

 

 

 

 

Reversals of provisions are generally offset against the expense items for which they were originally established.

The provisions for environmental remediation primarily refer to site remediation of locations of the former Raab Karcher companies. Remediation has either already begun or an agreement has been reached with the authorities as to how the damage is to be remedied. The cost estimates are based on expert opinions detailing the anticipated duration of the remediation work and the anticipated cost.

The personnel obligations are provisions for pre-retirement part-time work arrangements, provisions for bonuses, severance payments not relating to restructuring and other personnel expenses. The other personnel expenses include a provision for the long-term incentive plan (LTIP) determined in accordance with IFRS 2 of € 23.7 million (Dec. 31, 2018: € 17.8 million) (see Chapter [E47] Share-Based Payment).

The material individual cost items under miscellaneous other provisions include costs associated with legal disputes in the amount of € 14.1 million (2018: € 18.7 million), allocations to the provisions for pre-retirement part-time work arrangements in the amount of € 2.3 million (2018: € 14.0 million) and € 0.1 million (2018: € 0.1 million) in costs in connection with tax returns.

The Group expects to settle the lion’s share of the provision over the coming year.

Fair Value
Fair value is particularly relevant with regard to valuation in accordance with IAS 40 in conjunction with IFRS 13. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.