Note 28 - Provisions
28.1 PROVISIONS FOR PENSIONS AND OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
In application of the principles set out in note 3.19 “Provisions for pensions and other post-employment benefit obligations”, provisions are recognised to cover the Group’s obligations under defined benefit plans.
The provision recognised at 31 December represents the value of beneficiaries’ accumulated rights less the related plan assets. The Group’s main obligations concerning pensions and other post-employment benefits relate to plans in the United Kingdom and France.
United Kingdom
The Group’s pension plans in the United Kingdom are closed to new entrants and current members may no longer accrue any future benefits. The pension benefits payable under these plans are based on beneficiaries’ career average salaries. The plans are funded by plan assets, and in accordance with the applicable law are subject to minimum funding requirements. A Board of Trustees – made up of an equal number of representatives of the employer and employees/ retirees – is responsible for ensuring that the plans are properly managed from both an administrative and financial perspective. At 31 December 2019, the plans in effect in the United Kingdom represented an aggregate obligation of €237 million (60% of the Group’s total obligation) and plan assets amounted to €247 million (92% of the Group’s total plan assets).
France
The most significant plans in place in France relate to end-of-career bonuses paid to employees in accordance with the specific requirements of each entity’s collective bargaining agreement. Employees are paid this bonus when they retire and its amount is calculated based on the employee’s length of service and the terms and conditions specified in the relevant collective bargaining agreement. End-of-career bonuses are not covered by funded plans and are not subject to any minimum funding requirements. These plans represented a benefit obligation of €69 million, of which €3 million was reclassified within liabilities associated with assets held for sale, leaving a net benefit obligation of €66 million (16% of the Group’s total benefit obligation).
The tables below give details of the assumptions used for measuring the Group’s pension and other post-employment benefit obligations as well as movements in their value and the related provisions recognised.
Change in present value of benefit obligation
| 2019 | 2018 | |
|---|---|---|
| Present value of benefit obligation at beginning of year | 358 | 400 |
| Current service cost | 9 | 9 |
| Plan amendments/Curtailments | (13) | 8 |
| Settlements | (4) | (1) |
| Interest expense | 8 | 8 |
| Employee contributions | - | - |
| Benefits paid | (12) | (19) |
| Actuarial (gains) and losses from changes in demographic assumptions | - | (3) |
| Actuarial (gains) and losses from changes in financial assumptions | 39 | (17) |
| Actuarial (gains) and losses from experience adjustments | 1 | (1) |
| Changes in scope of consolidation and assets held for sale(*) | (33) | (22) |
| Translation adjustments and other | 12 | (4) |
| Present value of benefit obligation at end of year | 365 | 358 |
| Present value of benefit obligation at end of year for funded plans | 277 | 262 |
| Present value of benefit obligation at end of year for unfunded plans | 88 | 96 |
(*) Classified within liabilities associated with assets held for sale in an amount of €34 million at 31 December 2019 (see note 4.3).
Change in fair value of plan assets
| 2019 | 2018 | ||||
|---|---|---|---|---|---|
| Fair value of plan assets at beginning of year | 229 | 239 | |||
| Interest income | 7 | 7 | |||
| Effect of remeasurements | 22 | (9) | |||
| Employee contributions | - | - | |||
| Employer contributions | 5 | 7 | |||
| Benefits paid | (8) | (9) | |||
| Settlements | - | - | |||
| Changes in scope of consolidation | - | - | |||
| Translation adjustments and other | 13 | (2) | |||
| Fair value of plan assets at end of year | 268 | 229 |
Asset allocation at 31 December
| 2019 | 2018 | ||||
|---|---|---|---|---|---|
| Shares | 18% | 18% | |||
| Bonds | 71% | 73% | |||
| Real estate | 2% | 3% | |||
| Money market instruments | 3% | 2% | |||
| Other | 5% | 5% |
Calculation of net amount recognised as a provision at 31 December
| 2019 | 2018 | 2017 | 2016 | 2015 | |
|---|---|---|---|---|---|
| Present value of benefit obligation | 365 | 358 | 400 | 395 | 368 |
| Fair value of plan assets | (268) | (229) | (239) | (229) | (230) |
| Unrecognised past service cost | - | - | - | - | - |
| Net amount recognised as a provision | 97 | 129 | 161 | 166 | 138 |
Movements in the provision recognised in the balance sheet
| 2019 | 2018 | ||||
|---|---|---|---|---|---|
| Provision at beginning of year | 129 | 161 | |||
| Net expense for the year | (7) | 17 | |||
| Actuarial (gains) and losses recognised in equity | 19 | (8) | |||
| Employer contributions | (5) | (7) | |||
| Benefits paid by the employer | (4) | (10) | |||
| Changes in scope of consolidation and assets held for sale(*) | (33) | (22) | |||
| Translation adjustments and other | (2) | (2) | |||
| Provision at end of year(**) | 97 | 129 |
(*) Classified within liabilities associated with assets held for sale in an amount of €34 million at 31 December 2019 (see note 4.3).
(**) Including €106 million in provisions for post-employment benefit obligations and a negative amount of €9 million recognised under other non-current assets for two overfunded plans.
Calculation of net expense for the year
| 2019 | 2018 | |
|---|---|---|
| Current service cost | 9 | 9 |
| Plan amendments/Curtailments | (13) | 8 |
| Settlements | (4) | (1) |
| Interest expense | 1 | 1 |
| Actuarial gains and losses on other employee benefits | - | - |
| Net expense (income) recognised in the income statement | (7) | 17 |
| Actuarial (gains) and losses from changes in demographic assumptions | - | (3) |
| Actuarial (gains) and losses from changes in financial assumptions | 39 | (17) |
| Actuarial (gains) and losses from experience adjustments | 1 | (1) |
| Excess of actual return on plan assets | (21) | 13 |
| Effect of asset ceiling | - | - |
| Remeasurement of the net liability recognised in equity | 19 | (8) |
| Net expense for the year | 12 | 9 |
Actuarial assumptions used to calculate benefit obligations
| 2019 | 2018 | |
|---|---|---|
| Discount rate: weighted average for all countries including: | 1.81% | 2.40% |
| - Eurozone(*) - United Kingdom(*) |
0.90% 2.10% |
1.65% 2.85% |
| Average expected rate of benefit increase | 2.90% | 3.09% |
| Average expected rate of salary increase | 2.00% | 1.86% |
| Expected rate of healthcare cost inflation: | ||
| - initial - ultimate - year in which ultimate rate is expected to be reached |
3.75% 2.25% 2030 |
3.75% 2.25% 2030 |
(*) Discount rates are derived from market rates on high quality corporate bonds (rated AA) with maturities that approximate those of the estimated future payments under the plans. The benchmark index used for the eurozone is the iBoxx Corporate AA.
Experience gains and losses recognised in equity
| 2019 | 2018 | |
|---|---|---|
| Difference between actual and expected return on plan assets | ||
| Gains (losses) | 22 | (13) |
| Percentage of plan assets at year-end | 8.30% | -5.49% |
| Experience adjustments | ||
| Losses (gains) | 1 | (1) |
| Percentage of present value of plan liabilities at year-end | 0.30% | -0.20% |
Sensitivity to changes in healthcare cost inflation assumptions (+/-1%) for post-employment medical plans
| 2019 | 2018 | |
|---|---|---|
| Present value of benefit obligation at 31 December | - | 13 |
| Effect of a 1% increase: | ||
|
- | 56 |
|
- | 4 |
| Effect of a 1% decrease: | ||
|
- | (38) |
|
- | (2) |
Sensitivity of the obligation at 31 December 2019 to changes in the discount rate
| 0.5% increase |
0.5% decrease |
|
|---|---|---|
| Impact on present value of benefit obligation | (33) | 30 |
| Weighted average duration of obligations | 16 ans | |
Expected employer contributions
| 2019 | 2018 | |
|---|---|---|
| Expected employer contributions | 5 | 5 |
Actuarial gains and losses recognised directly in equity
| 2019 | 2018 | |
|---|---|---|
| Actuarial gains (losses) at 1 January | (17) | (22) |
| Change during the year: | ||
|
(41) | 20 |
|
22 | (13) |
| Actuarial gains (losses) at 31 December | (36) | (15) |
| Deferred tax impact | (3) | (2) |
| Actuarial gains (losses), net of tax at 31 December | (39) | (17) |
28.2 OTHER PROVISIONS
Current and non-current provisions for contingencies and losses primarily cover the following:
| 31 Dec. 2019 | 31 Dec. 2018 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Future losses on long-term contracts and other contracts | - | 6 | ||||||||
| Restructuring and withdrawal costs | 32 | 32 | ||||||||
| Claims and litigation | 38 | 64 | ||||||||
| Other contingencies | 224 | 234 | ||||||||
| Total | 294 | 336 | ||||||||
| Of which: | ||||||||||
|
156 | 190 | ||||||||
|
138 | 146 | ||||||||
| 2019 | At 1 Jan. 2019 |
Translation adjustments |
Changes in scope of consolidation |
Charges | Utilisations | Releases of surplus provisions |
Reclassifications | Liabilities associated with assets held for sale |
At 31 Dec. 2019 |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Future losses on long-term contracts and other contracts | 6 | - | - | - | - | - | - | (6) | - | |
| Restructuring and withdrawal costs | 32 | - | (2) | 22 | (17) | (17) | 14 | - | 32 | |
| Claims and litigation |
64 | - | (5) | 3 | (4) | (8) | (12) | - | 38 | |
| Other contingencies | 234 | 1 | (8) | 46 | (30) | (24) | - | 5 | 224 | |
| Total | 336 | 1 | (15) | 71 | (51) | (49) | 2 | (1) | 294 | |
| 2018 | At 1 Jan. 2018 |
Translation adjustments |
Changes in scope of consolidation |
Charges | Utilisations | Releases of surplus provisions |
Reclassifications | Liabilities associated with assets held for sale |
At 31 Dec. 2018 |
|
|---|---|---|---|---|---|---|---|---|---|---|
| Future losses on long-term contracts and other contracts |
6 | - | - | - | - | - | - | (6) | - | |
| Restructuring and withdrawal costs | 29 | - | 2 | 20 | (15) | (4) | 5 | (5) | 32 | |
| Claims and litigation | 69 | - | 1 | 9 | (7) | (2) | - | (6) | 64 | |
| Other contingencies | 263 | (1) | 5 | 40 | (31) | (38) | 9 | (13) | 234 | |
| Total | 367 | (1) | 8 | 69 | (53) | (44) | 14 | (24) | 336 | |
Provisions for claims and litigation cover risks identified at the end of the reporting period and are based on the estimated amount of potential losses for the Group.
Amounts shown under “Other contingencies” comprise items not directly attributable to the specific categories listed and relating to generally small individual transactions carried on in the ordinary course of business and concerning all consolidated entities.