Annual Report 2017

28. Post-Employment Benefits

The amounts recognized in the Balance Sheet are determined as follows:

in thousands of EUR

31 December 2017

31 December 2016

Present value of benefit obligation

69,692

4,521

Fair value of plan assets

- 42,602

- 1,939

Net position

27,090

2,582

Present value of unfunded obligation

72,211

73,111

Provision in the Balance Sheet

99,301

75,693

The increase in 2017 relates mainly to the post employment benefit plan for employees of Visilab, which was acquired in October 2017.

The most recent actuarial valuations were performed in December 2017.

The defined benefit obligation of the unfunded plans mainly relate to:

  • A pension arrangement, in addition to the state pension provided in Germany, for employees already employed with Apollo prior to 1994 (2017: €54.6 million; 2016: €55.5 million). Every service year of the employees in the plan adds an amount of 1% of their pensionable salaries to the plan. This occurs for a maximum of 25 years and is maximized in terms of pay-out.
  • The Italian Trattamento di Fine Rapporto program (2017: €5 million; 2016: €5.4 million) for service years until 2012. For service years since 2013 the Trattamento di Fine Rapporto is paid to a pension fund or a state agency as a defined contribution.
  • An end-of-employment plan for French employees (2017: €12.3 million; 2016: €11.9 million). This is based on service years and calculated according to the estimated remuneration in the last year of employment.

These plans are unfunded and thus both the pay-out and the actuarial risks are the responsibility of the Company.

The net defined benefit obligation of the funded plans mainly relates to the pension arrangement of Visilab of €23.9 million. The assets of the plan at 31 December 2017 are €39.9 million and the obligations of the plan at 31 December 2017 are €63.9 million. The pension arrangements (occupational pension plans) of Visilab are funded plans, providing benefits upon retirement, death, disability and termination. Those arrangements are the base of the second pillar of the Swiss social security system. Both employer and employees pay contributions to the pension plan. To comply with legal requirements, employers have to set up a pension arrangement for their employees. For this purpose, Visilab is affiliated to the Fondation BCV deuxième pilier (“the Foundation”) which is a collective pension fund (group administration plan) under the supervision of the Supervisory Authority in the canton of Vaud. The pension plan is governed by a committee which consists of an equal number of employer and employee representatives and is managed by the Foundation. Visilab has no control over investments performed by the Foundation. Pension arrangements are subject to the mandatory insurance requirements according to the Swiss Federal Law on Occupational Retirement, Survivors' and Disability Pension Funds (LPP/BVG). Should the Foundation become underfunded according to Swiss Law, the Foundation Board must decide on recovery measures that will allow the coverage ratio to return to 100% within an appropriate time horizon. The latest known coverage ratio of the Foundation was 107.5% as at 31 December 2016.

The remainder of the assets and obligations of the funded plans mainly relate to defined benefit plans in Mexico.

The risks of these plans are mainly related to changes in the discount rate applied to determine the defined benefit obligation.

The amounts recognized in the Income Statement are as follows:

in thousands of EUR

Notes

2017

2016

Current service costs

3,005

1,964

Interest expense

1,429

1,597

Plan amendments/curtailments/settlements

-

- 15

Administrative costs

-

- 26

Total defined benefit costs

8

4,434

3,520

The movement in the defined benefit obligation over the year was as follows:

in thousands of EUR

Present value of obligation

Fair value of plan assets

Total

At 1 January 2016

67,209

- 2,505

64,704

Current service costs

1,964

-

1,964

Interest expense/ (income)

1,760

- 163

1,597

Employer contributions

-

- 1,503

- 1,503

Experience adjustments

593

-

593

Change in financial assumptions

8,521

-

8,521

Change in demographic assumptions

- 15

-

- 15

Plan amendments and curtailments

- 15

-

- 15

Return on plan assets, excluding amounts in interest

-

134

134

Benefits paid

- 1,783

1,783

-

Exchange effect

- 602

315

- 287

At 31 December 2016

77,632

- 1,939

75,693

At 1 January 2017

77,632

- 1,939

75,693

Acquisition of subsidiary

63,868

- 39,981

23,887

Current service costs

3,005

-

3,005

Interest expense/ (income)

2,535

- 1,106

1,429

Employee contributions

595

- 595

-

Employer contributions

-

- 1,917

- 1,917

Experience adjustments

- 1,135

-

- 1,135

Change in financial assumptions

- 1,360

-

- 1,360

Change in demographic assumptions

196

-

196

Plan amendments and curtailments

15

- 14

1

Return on plan assets, excluding amounts in interest

-

95

95

Benefits paid

- 2,233

2,233

-

Reclassification

3

-

3

Exchange effect

- 1,218

622

- 596

At 31 December 2017

141,903

- 42,602

99,301

Assumptions

The principal actuarial assumptions used were as follows:

2017

2016

Discount rate

1.4%

1.9%

Expected return on plan assets

1.0%

8.0%

Future salary increases

2.1%

2.9%

Future inflation

1.4%

1.8%

In 2017, the expected return on plan assets relates mainly to the post employment benefit plan of Visilab (2016: Mexico). The difference between the discount rate and the expected return on plan assets was caused by the weighted impact of funded and unfunded plans.

The most recent available mortality tables have been used in determining the pension liability. Experience adjustments have been made. The assumptions are based on historical experiences. The expected return on plan assets is based on the expected return on high-quality corporate bonds.

A 1% increase in the discount rate used to calculate the defined benefit obligation would result in 16% decrease in the defined benefit obligation. A 1% decrease in the discount rate used to calculate the defined benefit obligation would result in 21% increase in the defined benefit obligation. An increase of 0.25% in salary would result in an increase of 1% in the defined benefit obligation. A 1 year increase in life expectancy would result in an increase of 2% in the defined benefit obligation. An increase of 1% in inflation would result in an 8% increase in the defined benefit obligation.

The above sensitivity analyses are based on changing one assumption while all other assumptions remain constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position. 

Plan assets are comprised as follows:

in thousands of EUR

2017

2016

Insurance contracts

40,947

-

Debt instruments

1,054

1,091

Equities

595

848

Other

6

-

Total

42,602

1,939

The plan assets of Visilab qualify for the level 2 fair value category. See note 3.3 for a description of the different levels of valuation categories.

The expected maturity of the undiscounted pension and post-employment benefits is:

in thousands of EUR

2017

2016

Less than 1 year

3,811

1,553

Between 1 and 2 years

5,424

2,620

Between 2 and 5 years

13,383

7,535

Over 5 years

179,736

115,340

Total

202,354

127,048

The expected contributions in 2018 to the defined benefit plans amount to €2,025.