30. Employee benefits
The Group operates various defined benefit plans, including the defined benefit plans of Scholle IPN and Evergreen Asia. The largest defined benefit plan, also after the acquisitions, is in Switzerland. In addition, the Group has a number of defined contribution plans.
Overview of employee benefits
(In € million) |
|
As of |
|
As of |
|---|---|---|---|---|
Salaries and wages accrued |
|
46.5 |
|
47.0 |
Provision for annual leave |
|
14.4 |
|
9.0 |
Provision for other employee benefits |
|
6.6 |
|
2.2 |
Net defined benefit obligations: |
|
|
|
|
Pension benefit liabilities |
|
98.0 |
|
126.8 |
Total employee benefit liabilities |
|
165.5 |
|
185.0 |
Current |
|
60.9 |
|
56.0 |
Non-current |
|
104.6 |
|
129.0 |
Total employee benefit liabilities |
|
165.5 |
|
185.0 |
The Group has a net defined benefit asset of €114.6 million as of 31 December 2022 (€230.2 million as of 31 December 2021). This relates to the defined benefit pension plan in Switzerland. The Group’s net defined benefit liabilities relate to defined benefit pension plans in other countries.
Personnel expenses
Personnel expenses recognised in the statement of profit or loss and other comprehensive income were €482.4 million in the year ended 31 December 2022 (€387.3 million in the year ended 31 December 2021), of which €33.0 million relates to contributions to defined contribution plans (€27.6 million in the year ended 31 December 2021).
Defined benefit pension plans
The Group makes contributions to defined benefit pension plans. It operates defined benefit pension plans in countries including Austria, France, Germany, India, Indonesia, Saudi Arabia, South Korea, Switzerland, Taiwan, Thailand, the UAE and the USA. The majority of the Group’s pension obligations are in Switzerland. The retirement plans are subject to governmental regulations relating to how they are funded. The Group usually funds its retirement plans at an amount equal to the annual minimum funding requirements specified by the government regulations covering each plan.
This note generally includes aggregated disclosures in respect of the Group’s pension plans as the plans are not exposed to materially different risks. However, certain information relating to the Swiss retirement plan is disclosed separately as it is the Group’s largest pension plan.
As of 31 December 2022, the Swiss retirement plan comprises 70% of the present value of the Group’s pension plan obligations (73% as of 31 December 2021). As of 31 December 2022, the fair value of the assets of the Swiss retirement plan exceeded the present value of its pension obligations by €176.0 million (€230.2 million as of 31 December 2021). However, see the section “Expense recognised in other comprehensive income, including impact of the asset ceiling” below for the impact of the asset ceiling in the year ended 31 December 2022. An assessment of the investment strategy for the Swiss retirement plan is performed yearly.
Expected annual contributions to the Group’s defined benefit pension plans during the year ending 31 December 2023 are estimated to be €9.6 million. The Group’s pension plans had a weighted average duration of 13 years as of 31 December 2022 (13 years as of 31 December 2021).
Movement in net defined benefit obligation
Information about the net defined benefit obligation as of and for the year ended 31 December 2022 and the year ended 31 December 2021 is included below.
|
|
Defined benefit obligation |
|
Fair value of plan assets |
|
Impact of asset ceiling |
|
Net defined benefit liability/ |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In € million) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Carrying amount as of the beginning of the year |
|
484.1 |
|
509.2 |
|
(587.5) |
|
(559.1) |
|
– |
|
– |
|
(103.4) |
|
(49.9) |
Service cost |
|
8.9 |
|
8.4 |
|
– |
|
– |
|
– |
|
– |
|
8.9 |
|
8.4 |
Interest cost/ |
|
3.9 |
|
1.6 |
|
(3.1) |
|
(0.6) |
|
– |
|
– |
|
0.8 |
|
1.0 |
Administrative expenses |
|
– |
|
– |
|
0.7 |
|
0.5 |
|
– |
|
– |
|
0.7 |
|
0.5 |
Curtailments and settlements |
|
(0.4) |
|
(2.0) |
|
– |
|
– |
|
– |
|
– |
|
(0.4) |
|
(2.0) |
Total expense/ |
|
12.4 |
|
8.0 |
|
(2.4) |
|
(0.1) |
|
– |
|
– |
|
10.0 |
|
7.9 |
Actuarial (gains)/losses arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demographic assumptions |
|
8.7 |
|
(18.0) |
|
– |
|
– |
|
– |
|
– |
|
8.7 |
|
(18.0) |
Financial assumptions |
|
(45.7) |
|
(4.0) |
|
– |
|
– |
|
– |
|
– |
|
(45.7) |
|
(4.0) |
Return on plan assets, excluding interest income |
|
– |
|
– |
|
67.0 |
|
(33.2) |
|
– |
|
– |
|
67.0 |
|
(33.2) |
Change in asset ceiling |
|
– |
|
– |
|
– |
|
– |
|
60.1 |
|
– |
|
60.1 |
|
– |
Total remeasurement (gains)/ |
|
(37.0) |
|
(22.0) |
|
67.0 |
|
(33.2) |
|
60.1 |
|
– |
|
90.1 |
|
(55.2) |
Contributions by the Group |
|
– |
|
– |
|
(6.2) |
|
(5.9) |
|
– |
|
– |
|
(6.2) |
|
(5.9) |
Contributions by plan participants |
|
1.7 |
|
1.8 |
|
(1.7) |
|
(1.8) |
|
– |
|
– |
|
– |
|
– |
Benefits paid by the plans |
|
(36.1) |
|
(38.1) |
|
36.1 |
|
38.1 |
|
– |
|
– |
|
– |
|
– |
Addition through business combination |
|
60.1 |
|
9.3 |
|
(59.0) |
|
– |
|
– |
|
– |
|
1.1 |
|
9.3 |
Effect of movements in exchange rates |
|
16.7 |
|
15.9 |
|
(26.2) |
|
(25.5) |
|
1.3 |
|
– |
|
(8.2) |
|
(9.6) |
Total other movements |
|
42.4 |
|
(11.1) |
|
(57.0) |
|
4.9 |
|
1.3 |
|
– |
|
(13.3) |
|
(6.2) |
Carrying amount as of the end of the year |
|
501.9 |
|
484.1 |
|
(579.9) |
|
(587.5) |
|
61.4 |
|
– |
|
(16.6) |
|
(103.4) |
Comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swiss retirement plan |
|
349.5 |
|
352.9 |
|
(525.5) |
|
(583.1) |
|
61.4 |
|
– |
|
(114.6) |
|
(230.2) |
All other plans |
|
152.4 |
|
131.2 |
|
(54.4) |
|
(4.4) |
|
– |
|
– |
|
98.0 |
|
126.8 |
Carrying amount as of the end of the year |
|
501.9 |
|
484.1 |
|
(579.9) |
|
(587.5) |
|
61.4 |
|
– |
|
(16.6) |
|
(103.4) |
Included in the statement of financial position as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits (asset) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(114.6) |
|
(230.2) |
Employee benefits (liability) |
|
|
|
|
|
|
|
|
|
|
|
|
|
98.0 |
|
126.8 |
Total net defined pension benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.6) |
|
(103.4) |
Expense recognised in profit or loss
The net pension expense is recognised in the following components in the statement of profit or loss and comprehensive income.
(In € million) |
|
Year ended |
|
Year ended |
|---|---|---|---|---|
Cost of sales |
|
4.7 |
|
3.7 |
Selling, marketing and distribution expenses |
|
1.0 |
|
0.7 |
General and administrative expenses |
|
4.3 |
|
3.5 |
Total net pension expense |
|
10.0 |
|
7.9 |
thereof the Swiss retirement plan |
|
5.3 |
|
5.1 |
Expense recognised in other comprehensive income, including impact of the asset ceiling
The remeasurement of the Group’s defined benefit pension plans as of 31 December 2022 resulted in a €81.8 million decrease in other comprehensive income (net of tax), of which €101.6 million relates to the Group’s Swiss pension plan. The decrease is due to negative asset performance, partially offset by an increase in the discount rate, and to reaching the asset ceiling for the first time.
An increase in the discount rate in the year ended 31 December 2022 resulted in a significant decrease of the asset ceiling, which limited the amount that is recognised as a net defined benefit asset for the Group’s Swiss pension plan to €114.6 million as of 31 December 2022 (€230.2 million as of 31 December 2021). The recognised asset as of 31 December 2022 is limited to the present value of future economic benefits available in the form of reductions in future contributions to the plan. This first-time impact of the asset ceiling for the Group is included in the amount recognised in other comprehensive income.
The remeasurement of the Group’s defined benefit pension plans in the year ended 31 December 2021 resulted in an increase of €45.7 million, net of income tax, in other comprehensive income.
Plan assets
(In € million) |
|
As of |
|
As of |
|---|---|---|---|---|
Equity instruments |
|
125.8 |
|
163.9 |
Debt instruments |
|
246.2 |
|
226.6 |
Real estate |
|
173.3 |
|
177.0 |
Other |
|
34.6 |
|
20.0 |
Total plan assets |
|
579.9 |
|
587.5 |
Approximately 91% of total plan assets are held by the Swiss retirement plan as of 31 December 2022 (99% as of 31 December 2021). The debt instruments consist principally of corporate and government bonds. The equity and debt instrument values are based on quoted market prices in active markets. The real estate is held through unlisted funds. The investment policy of the Swiss retirement plan is to target an asset mix of around 25% equity instruments, 45% debt instruments and 25% real estate funds, and to hold 5% in cash.
Actuarial assumptions
The amounts recognised under the Group’s defined benefit pension plans are determined using actuarial methods. The actuarial valuations involve assumptions regarding discount rates, expected salary increases and the retirement age of employees. These assumptions are reviewed at least annually and reflect estimates as of the measurement date. Any change in these assumptions will impact the amounts reported in the statement of financial position, plus the net pension expense or income that may be recognised in future years. The mortality table used for the Swiss retirement plan for 2022 and for 2021 was BVG 2020 GT.
While the Swiss retirement plan does not provide for compulsory benefit increases for pensioners, increases have been granted from time to time at the discretion of the foundation board, depending on the funding situation at the time.
The discount rate and future salary increases are the assumptions with the most significant effect on the defined benefit obligation. They are presented in the table below.
|
|
Swiss retirement plan |
|
All plans |
||||
|---|---|---|---|---|---|---|---|---|
(in %) |
|
As of |
|
As of |
|
As of |
|
As of |
Discount rates |
|
2.30% |
|
0.30% |
|
1.4% – 7.3% |
|
0.3% – 6.8% |
Future salary increases |
|
2.00% |
|
1.50% |
|
0.0% – 9.0% |
|
0.0% – 9.0% |
The table below shows the effect on the defined benefit obligation of a change in the discount rate and future salary increases.
|
|
Swiss retirement plan |
|
All plans |
||||
|---|---|---|---|---|---|---|---|---|
(In € million) |
|
As of |
|
As of |
|
As of |
|
As of |
Discount rates |
|
|
|
|
|
|
|
|
50 basis points increase |
|
(4.6) |
|
(5.1) |
|
(13.7) |
|
(15.4) |
50 basis points decrease |
|
4.9 |
|
12.0 |
|
15.0 |
|
23.7 |
Future salary increases |
|
|
|
|
|
|
|
|
50 basis points increase |
|
0.9 |
|
1.2 |
|
2.6 |
|
2.8 |
50 basis points decrease |
|
(0.9) |
|
(1.1) |
|
(2.3) |
|
(2.7) |
For the year ended 31 December 2021, a 50 basis points decrease of the discount rate for the Swiss retirement plan would have resulted in a negative discount rate, which explains the increased sensitivity to downward changes in discount rates.
Accounting policy
Short-term employee benefits
Short-term employee benefits are expensed in profit or loss as the related services are provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans and outstanding annual leave balances if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be estimated reliably.
Defined benefit plans
The Group’s obligation with respect to its defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits to which employees are entitled in return for their services in the current and prior years, discounting that amount to determine the present value of the Group’s obligation and then deducting the fair value of any plan assets. The discount rate used is the yield on high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have maturity dates approximating the terms of the Group’s obligations. The calculations are performed annually by qualified actuaries using the projected unit credit method.
If the calculation results in a potential asset for the Group (such as for the Group’s Swiss retirement plan), the recognised asset is limited to the present value of economic benefits available in the form of reductions in future contributions to the plan (the case for the Swiss retirement plan) or any future refunds from the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined liability, comprising actuarial gains and losses, the return on plan assets (excluding interest) and, if any, the effects of the asset ceiling (excluding interest), are recognised immediately in other comprehensive income.
The net interest expense/(income) on the net defined benefit liability/(asset) for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined liability/(asset) as of that time, taking into account any changes from contributions and benefit payments. Net interest expense and other plan expenses are recognised in profit or loss.
If the benefits of a plan are changed or a plan is curtailed, the resulting change in benefit that relates to past services or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.
Defined contribution plans
The Group’s obligation for contributions to defined contribution plans is expensed as the related service is provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. The Group has no further obligations once the contributions have been paid.
Termination benefits
Termination benefits, when applicable, are payable when employment is terminated by the Group before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for such benefits. Termination costs are expensed when the Group can no longer withdraw the offer of the benefits or when the Group recognises any related restructuring costs, whichever occurs earlier.
Significant judgements and estimates
Amounts recognised under the Group’s defined benefit pension plans are determined using actuarial methods. These actuarial valuations involve various assumptions that reflect estimates as of the measurement date. See the section “Actuarial assumptions” above for an overview of the impact of any change in these assumptions.