Notes to the Consolidated Financial Statements
1. Basic information and principles of the report
2. Changes in Group structure
3. Summary of significant accounting policies
4. Risk assessment and management
5. Management of capital
6. Trade accounts receivable
7. Other current assets and current financial assets
9. Property, plant and equipment
10. Other non-current assets and non-current financial assets
11. Goodwill and intangible assets
12. Short-term debt
13. Other current liabilities and provisions
14. Long-term debt
15. Financial instruments
16. Retirement benefit plans
The Group manages defined benefit plans for its employees in various countries. The most relevant defined benefit plans exist in Switzerland and in Germany and account together for 92% (PY: 92%) of the total benefit obligations.
The following table provides an overview of the current status of the benefit obligations, plan assets and reimbursement rights of reinsurance policies.
|Benefit obligation (for funded retirement benefit plans)||582.9||554.9|
|Plan assets at fair value||510.6||496.1|
|Benefit obligation (for unfunded retirement benefit plans)||220.9||210.6|
|Plan assets at fair value||0.0||0.0|
|Benefit obligation (for funded retirement benefit plans)||42.2||39.6|
|Benefit obligation (for unfunded retirement benefit plans)||30.8||29.1|
|Plan assets at fair value||40.8||38.7|
|Benefit obligation (for all retirement benefit plans)||876.8||834.2|
|Plan assets at fair value||551.4||534.8|
Swiss retirement benefit plans
The Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG) governs occupational benefits in Switzerland. An employer with employees who must be insured is obliged to set up an independent pension fund entered in the register for occupational pension providers or affiliate with such a pension fund. The “Gemeinschaftsstiftung” of the Geberit Group is a foundation legally independent from the Geberit Group that insures all Geberit employees in Switzerland for compulsory and non-compulsory benefits. The Board of Trustees manages the Foundation and consists of employer and employee representatives in a parity ratio. The tasks of the Board of Trustees are set out in the BVG and the regulations based on the BVG adopted by the Board of Trustees.
The benefits provided by the pension plan exceed the minimum prescribed by law. They are funded by the employer and employee contributions, plus the interest paid on the savings assets of the insured party at an interest rate defined annually by the Board of Trustees in accordance with the legal provisions. If an insured party leaves the Geberit Group and/or the pension plan before reaching retirement age, the vested benefits accrued under the BVG are transferred to the new pension fund of the insured party. In addition to the funds brought into the pension plan by the insured party, these vested benefits consist of the employer and employee contributions, plus a supplement prescribed by law. The pension benefits comprise lifelong retirement pensions, disability benefits and death benefits for the surviving dependents. On retirement, a maximum of 50% of the retirement assets can be withdrawn in the form of a lump sum. The employer and employees pay an equal contribution to the pension fund, which is settled monthly. The contribution amount is determined by the employee’s age and is calculated as a percentage of the pensionable salary.
If the pension fund is underfunded in accordance with the BVG, the Board of Trustees is obliged by law to initiate measures to rectify the situation, such as reducing the interest paid on retirement assets, reducing the benefit entitlement, or collecting remedial contributions. Legally accrued benefits may not be reduced. With remedial contributions, the risk is shared between the employer and employees and the employer is not legally obliged to pay more than 50% of the additional contributions. The current financial status of the Swiss BVG-based pension plans does not require any remedial measures; the technical funding ratio of this Foundation in accordance with the BVG was 114.6% as of December 31, 2016 (PY: 115%).
If a pension fund is overfunded as defined in IAS 19, the surplus funds are available to the company only to a very limited extent. The economic benefit for Geberit lies in future reductions in contributions and is calculated in accordance with IFRIC 14.
The Board of Trustees is responsible for deciding on a strategy for investment of the plan assets. The objective is to achieve medium-term and long-term congruence and sustainability between the plan assets and the pension obligations under the BVG. Taking into account the foundation’s risk capacity, the investment strategy is defined as a targeted long-term investment structure.
The funded plans also include the “Wohlfahrtsfonds” of the Geberit Group, which provides non-compulsory benefits only. This fund for managerial employees supplements the insurance cover granted by the “Gemeinschaftsstiftung”. On retirement, the benefit is drawn as a lump sum or converted into a fixed-term annuity. The employer’s contributions must equal at least the total of all contributions by the insured party.
A pension plan of Bekon-Koralle AG was acquired with the Sanitec Group in 2015. This company belongs to the Koralle Group, which was sold on July 1, 2016 (see Note 2).
German retirement benefit plans
In Germany, there are capital account plans and annuity plans. The annuity plans are closed-end funds.
Capital account plans
The benefit plans and guidelines for payout are agreed in labour-management contracts. The employer can change the conditions by applying provisos. There can be special commitments based on the labour-management contracts or individual agreements, sometimes with annuity options. There is no minimum financing obligation.
Every year, a pension contribution is determined as a percentage of the pensionable salary or the employees can choose an amount of deferred compensation with or without employer contributions. This then serves as the age-dependent component on which a pension is accrued. The pension components accrued during the years of active service, including any resulting promises of fixed bonus payments and the initial credit from the transitional arrangement, are paid out in the form of a one-off lump sum or in instalments. Annuitisation is possible with the consent of the employer. The pension is not dependent on the employee’s final salary.
The employer manages the retirement accounts, informs the employees of the balance of their retirement assets, manages the claims and makes payments, sometimes involving the services of external service providers. When paying a lifelong pension, the employer must monitor the statutory and contractual obligations to adjust the pension and make adjustments when necessary.
If a lump-sum benefit is annuitised, the lifelong payment of the pension and possible subsequent widow’s or widower’s pension can trigger a longevity risk. Thanks to the contractual adjustment rules applying to annuitisation, the statutory obligation to make (and review) adjustments is not currently seen to harbour any inflation risk.
The deferred compensation with/without employer contributions and possible demographic contributions retained by the employer are paid into reinsurance policies where the employer is the beneficiary. This partly covers the pension obligations.
Annuity plans are governed by labour-management contracts or individual employment contracts. § 16 of the Company Pensions Act imposes an obligation on the employer to review the adjustment of pension payments. The extent of the adjustment requirement is usually determined by the consumer price index. Some individual employment contracts impose a contractual adjustment obligation. There is no minimum financing obligation.
These are closed-end funds. Pension commitments as prescribed by the Essener Verband (Essen Association) have been made to some active employees. Fixed euro entitlements are maintained for departing employees with vested rights. Annuities are paid out to the beneficiaries in the form of lifelong monthly pension payments that include survivors’ benefit entitlements.
The employer manages entitlements and claims and makes payments, sometimes involving the services of external service providers. It monitors the statutory and contractual obligations to adjust the pension and makes adjustments when necessary.
The lifelong payment of the pension and possible subsequent widow’s or widower’s pension can trigger a longevity risk. The statutory obligation to make (and review) adjustments can also harbour an inflation risk.
The acquisition of the Sanitec Group also added various pension plans in Germany. In respect of Keramag Keramische Werke GmbH, Ratingen, there exists a benefit obligation arising from certain pension commitments made as well as a benefit obligation with reinsurance assets.
The net periodic pension costs of all defined benefit plans of the Group were as follows:
|Current service cost||33.2||31.1|
|Contributions of employees||-9.2||-8.9|
|Net interest cost for retirement benefit plans||4.2||4.2|
|Net periodic pension cost||28.2||26.4|
The service cost for the Swiss retirement benefit plans was MCHF 22.5 in 2016 (PY: MCHF 21.5) and for the German retirement benefit plans MCHF 9.7 (PY: MCHF 8.6). The net interest cost for the Swiss retirement benefit plans was MCHF 0.4 in 2016 (PY: MCHF 0.3) and for the German retirement benefit plans MCHF 3.5 (PY: MCHF 3.6).
The following table shows the remeasurements for the defined benefit plans in other comprehensive income in the Consolidated Statements of Comprehensive Income:
|Actuarial gains (-) / losses:||43.1||21.8|
|- of which from changes in demographic assumptions||-1.0||-0.3|
|- of which from changes in financial assumptions||43.4||22.2|
|- of which from experience adjustments||0.7||-0.1|
|Return on plan assets (excluding interest based on discount rate)||-22.2||-6.9|
|Return on reimbursement rights (excluding interest based on discount rate)||-0.1||-0.1|
|Asset ceiling adjustment||0.0||0.0|
|Total pre-tax remeasurements recognised in other comprehensive income||20.8||14.8|
The remeasurements recognised in other comprehensive income in the Consolidated Statements of Comprehensive Income in 2016 for the Swiss retirement benefit plans amounted to MCHF 13.6 (PY: MCHF 15.6) and for the German retirement benefit plans to MCHF 5.4 (PY: MCHF 2.7).
The following tables show the changes in benefit obligations, plan assets, reimbursement rights and the asset ceiling from January 1 to December 31:
|At beginning of year||834.2||727.5|
|Changes in scope of consolidation||-15.1||87.6|
|Current service cost||33.2||31.1|
|Actuarial gains (-) / losses||43.1||21.8|
|New plans / plan adjustments||1.5||0.1|
|Benefit obligation at end of year||876.8||834.2|
|Plan assets at fair value|
|At beginning of year||534.8||471.0|
|Changes in scope of consolidation||-9.5||47.3|
|Interest income (based on discount rate)||5.3||7.2|
|Return on plan assets (excluding interest based on discount rate)||22.2||6.9|
|Contributions of employees||8.7||8.5|
|Contributions of employers||9.0||9.3|
|New plans / plan adjustments||0.0||-0.1|
|Plan assets at fair value at end of year||551.4||534.8|
|Funded status at end of year||-325.4||-299.4|
|Asset ceiling adjustment||0.0||0.0|
|Assets from defined benefit plans (Note 10)||-0.4||-1.4|
|Net funded status at end of year||-325.8||-300.8|
|Fair value of reimbursement rights|
|At beginning of year||17.2||16.2|
|Changes in scope of consolidation||0.0||0.0|
|Interest income (based on discount rate)||0.5||0.5|
|Return on reimbursement rights (excluding interest based on discount rate)||0.1||0.1|
|Contributions of employers||1.3||1.3|
|Contributions of employees||0.5||0.4|
|Fair value of reimbursement rights at end of year||19.3||17.2|
As of December 31, 2016, the fair value of the reinsurance policies for the German retirement benefit plans was MCHF 12.3 (PY: MCHF 10.7).
The following table provides an analysis of the fair value and composition of the plan assets.
|Listed on an active market||Other||Total||Listed on an active market||Other||Total|
|Bonds and other debt instruments||108.5||38.0||146.5||109.7||36.0||145.7|
|Real estate property||54.8||121.1||175.9||50.7||114.8||165.5|
|Cash and cash equivalents||20.1||0.0||20.1||15.4||0.0||15.4|
The plan asset of the Swiss retirement benefit plans was MCHF 510.6 as of December 31, 2016 and the effective income on the plan assets was +3.45% in 2016 and +2.6% in 2015. As of the end of 2016, the plan assets included MCHF 6.3 (PY: MCHF 5.2) in equity instruments of Geberit AG and MCHF 10.1 (PY: MCHF 10.1) in real estate used by the Group.
The following table provides an analysis of the benefit obligations of the Swiss and German retirement benefit plans:
|Active members||Deferred members||Pensioners||Total||Active members||Deferred members||Pensioners||Total|
|Plan members (number)|
|Swiss retirement benefit plans||1,238||500||1,738||1,248||4||487||1,739|
|German retirement benefit plans||4,254||525||355||5,134||4,065||500||371||4,936|
|Total plan members||5,492||525||855||6,872||5,313||504||858||6,675|
|Benefit obligation (in MCHF)|
|Swiss retirement benefit plans||346.6||236.3||582.9||335.6||0.7||218.6||554.9|
|German retirement benefit plans||156.4||23.7||40.8||220.9||147.7||22.9||40.0||210.6|
|Total benefit obligation||503.0||23.7||277.1||803.8||483.3||23.6||258.6||765.5|
|Share in %||62.6||2.9||34.5||100.0||63.1||3.1||33.8||100.0|
The weighted average duration of the benefit obligation for the Swiss retirement benefit plans is approx. 17 years (PY: approx. 16 years) and for the German retirement benefit plans approx. 12 years (PY: approx. 12 years).
Employer contributions of MCHF 8.9 are expected for the Swiss retirement benefit plans in 2017. In Switzerland, an employer contribution reserve of MCHF 19.5 may be used for future contribution payments.
The calculation of the benefit obligations for the material retirement benefit plans was based on the following assumptions (in %):
|Salary increase rate||1.2||0 - 2.5||1.2||0 - 2.5|
|Pension increase rate||0.0||2.0||0.0||2.0|
|Mortality||BVG 2015 generations table||2005G actuarial tables||BVG 2010 generations table||2005G actuarial tables|
The trend for sickness cost does not affect benefit obligations in Switzerland or Germany.
The following sensitivity analysis shows how the present value of the benefit obligation for the material retirement benefit plans (CH and DE) would change if a single reporting date assumption was changed. Every assumption change was analysed separately. Interdependencies were not taken into account.
|Swiss retirement benefit plans: increase/reduction (-) in present value of benefit obligation||German retirement benefit plans: increase/reduction (-) in present value of benefit obligation|
|Increased by 50 basis points||-7.6%||-5.5%|
|Reduced by 50 basis points||+8.7%||+6.2%|
|Increased by 25 basis points||+0.43%||+0.03%|
|Reduced by 25 basis points||-0.42%||-0.03%|
In addition, the Group’s consolidated income statement for 2016 included expenses for defined contribution plans of MCHF 7.4 (PY: MCHF 10.0).