Change
Select Note

Note 17: Provisions


Movements in provisions

 

 

 

 

 

 

 

 

 

 

 

In € millions

 

Pensions and other post-retirement benefits

 

Restructuring of activities

 

Environmental costs

 

Other

 

Total

Balance at January 1, 2011

 

1,281

 

137

 

419

 

611

 

2,448

Additions made during the year

 

156

 

121

 

41

 

83

 

401

Utilization

 

(531)

 

(109)

 

(48)

 

(110)

 

(798)

Amounts reversed during the year

 

 

(17)

 

(35)

 

(44)

 

(96)

Unwind of discount

 

 

2

 

32

 

15

 

49

Acquisitions/divestments

 

1

 

 

 

4

 

5

Pension plans changing to net asset position

 

264

 

 

 

 

264

Changes in exchange rates

 

(15)

 

1

 

5

 

4

 

(5)

Balance at December 31, 2011

 

1,156

 

135

 

414

 

563

 

2,268

 

 

 

 

 

 

 

 

 

 

 

Non-current portion of provisions

 

1,053

 

39

 

344

 

281

 

1,717

Current portion of provisions

 

103

 

96

 

70

 

282

 

551

Balance at December 31, 2011

 

1,156

 

135

 

414

 

563

 

2,268

Provisions for pensions and other post-retirement benefits

We have a number of defined benefit pension plans. The largest pension plans are the ICI Pension Fund and the AkzoNobel (CPS) Pension Scheme in the UK which together account for 79 percent of our pension plan obligations. The benefits of these and other plans are based primarily on years of service and employees’ compensation. The funding policy for the plans is consistent with local requirements in the countries of establishment. Obligations under the defined benefit plans are systematically provided for by depositing funds with trustees or separate foundations, under insurance policies, or by balance sheet provisions. Plan assets principally consist of long-term interest-earning investments, quoted equity securities and real estate. Valuations of the obligations under the pension and other post-retirement plans are carried out regularly by independent qualified actuaries.

We also provide certain healthcare and life insurance benefits to retired employees, mainly in the US and the Netherlands. We accrue for the expected costs of providing such post-retirement benefits during the service years of the employees.

The main changes in 2011 related to our pension and other post-retirement obligations concerned the AkzoNobel (CPS) Pension Scheme. The UK Government announced in July 2010 that inflation as measured by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) would be used to determine future statutory pension increases for private sector pension schemes. As CPI inflation is generally lower than RPI inflation, the anticipated lower pension payments for a large proportion of CPS pensioners reduced the defined benefit obligation by around €131 million in 2011 following a reduction of €58 million in 2010 when the change was applied to a smaller group of members.

Movements in pensions and other post-retirement benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pensions

 

Other post-retirement benefits

 

Total

In € millions

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit obligation

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

(13,688)

 

(14,171)

 

(393)

 

(394)

 

(14,081)

 

(14,565)

Acquisitions/divestments/transfers

 

192

 

9

 

16

 

 

208

 

9

Curtailments

 

6

 

 

 

 

6

 

Settlements

 

15

 

16

 

 

 

15

 

16

Past service costs

 

(8)

 

(6)

 

3

 

(5)

 

(5)

 

(11)

Current service costs

 

(52)

 

(51)

 

(7)

 

(6)

 

(59)

 

(57)

Contribution by employees

 

(3)

 

(4)

 

(3)

 

(2)

 

(6)

 

(6)

Interest costs

 

(773)

 

(725)

 

(20)

 

(18)

 

(793)

 

(743)

Benefits paid

 

936

 

919

 

34

 

31

 

970

 

950

Actuarial gains/(losses)

 

(250)

 

(715)

 

4

 

(16)

 

(246)

 

(731)

Changes in exchange rates

 

(546)

 

(382)

 

(28)

 

(11)

 

(574)

 

(393)

Defined benefit obligation at year-end

 

(14,171)

 

(15,110)

 

(394)

 

(421)

 

(14,565)

 

(15,531)

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan assets

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

11,821

 

13,122

 

 

 

11,821

 

13,122

Acquisitions/divestments/transfers

 

(105)

 

(6)

 

 

 

(105)

 

(6)

Settlements

 

(14)

 

(16)

 

 

 

(14)

 

(16)

Contribution by employer

 

524

 

502

 

31

 

29

 

555

 

531

Contribution by employees

 

3

 

4

 

3

 

2

 

6

 

6

Benefits paid

 

(936)

 

(919)

 

(34)

 

(31)

 

(970)

 

(950)

Expected return on plan assets

 

691

 

684

 

 

 

691

 

684

Actuarial gains/(losses)

 

652

 

840

 

 

 

652

 

840

Changes in exchange rates

 

486

 

394

 

 

 

486

 

394

Plan assets at year-end

 

13,122

 

14,605

 

 

 

13,122

 

14,605

Funded status

 

(1,049)

 

(505)

 

(394)

 

(421)

 

(1,443)

 

(926)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized net loss/(gain)

 

637

 

491

 

(6)

 

10

 

631

 

501

Unrecognized past service costs

 

4

 

5

 

(19)

 

(17)

 

(15)

 

(12)

Restriction on asset recognition

 

 

(3)

 

 

 

 

(3)

Medicare receivable

 

 

 

(6)

 

(4)

 

(6)

 

(4)

Net balance sheet provisions

 

(408)

 

(12)

 

(425)

 

(432)

 

(833)

 

(444)

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded under

 

 

 

 

 

 

 

 

 

 

 

 

Provisions for pensions and other
post-retirement benefits

 

(856)

 

(724)

 

(425)

 

(432)

 

(1,281)

 

(1,156)

Other financial non-current assets

 

448

 

712

 

 

 

448

 

712

Total

 

(408)

 

(12)

 

(425)

 

(432)

 

(833)

 

(444)

Funded and unfunded pension plans

 

 

 

 

 

In € millions

 

2010

 

2011

Wholly or partly funded plans

 

13,792

 

14,812

Unfunded plans

 

379

 

298

Total

 

14,171

 

15,110

Funded status in earlier years at December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pensions

 

Other post-retirement benefits

In € millions

 

2007

 

2008

 

2009

 

2007

 

2008

 

2009

Defined benefit obligation

 

(4,628)

 

(11,468)

 

(13,688)

 

(286)

 

(441)

 

(393)

Plan assets

 

3,502

 

10,480

 

11,821

 

 

 

Funded status

 

(1,126)

 

(988)

 

(1,867)

 

(286)

 

(441)

 

(393)

Actuarial gains and losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pensions

 

Other post-retirement benefits

In € millions

 

2007

 

2008

 

2009

 

2010

 

2011

 

2007

 

2008

 

2009

 

2010

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to experience

 

90

 

(147)

 

331

 

(92)

 

(98)

 

(3)

 

(5)

 

5

 

23

 

11

Due to change in assumptions

 

166

 

1,624

 

(2,034)

 

(158)

 

(617)

 

6

 

5

 

(12)

 

(19)

 

(27)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to experience

 

(29)

 

(1,445)

 

614

 

652

 

840

 

 

 

 

 

Total

 

227

 

32

 

(1,089)

 

402

 

125

 

3

 

 

(7)

 

4

 

(16)

Net periodic cost

 

 

 

 

 

 

 

 

 

 

 

Pensions

 

Other post-retirement benefits

In € millions

 

2010

 

2011

 

2010

 

2011

Service costs for benefits earned during the period

 

(52)

 

(51)

 

(7)

 

(6)

Interest costs on defined benefit obligations

 

(773)

 

(725)

 

(20)

 

(18)

Expected return on plan assets

 

691

 

684

 

 

Amortization of unrecognized losses/(gains)

 

(36)

 

(31)

 

 

(2)

Amortization of past service costs

 

(7)

 

(6)

 

5

 

(2)

Change of restriction of asset recognition

 

 

 

 

Settlement/curtailment gain

 

6

 

1

 

 

Total

 

(171)

 

(128)

 

(22)

 

(28)

Weighted average assumptions

 

 

 

 

 

 

 

 

 

 

 

Pensions

 

Other post-retirement benefits

In %

 

2010

 

2011

 

2010

 

2011

 

 

 

 

 

 

 

 

 

Defined benefit obligation at year-end

 

 

 

 

 

 

 

 

Discount rate

 

5.4

 

4.6

 

4.9

 

4.4

Rate of compensation increase

 

4.6

 

3.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic pension costs

 

 

 

 

 

 

 

 

Discount rate

 

5.6

 

5.4

 

5.3

 

4.9

Rate of compensation increase

 

4.6

 

4.6

 

 

 

 

Expected return on plan assets

 

5.7

 

5.3

 

 

 

 

The remaining plans primarily represent defined contribution plans. This includes, among others, the AkzoNobel Pension Fund in the Netherlands. The ITP2 plan in Sweden is financed through insurance with the Alecta insurance company and is classified as a multi-employer defined benefit plan. AkzoNobel does not have access to sufficient information from Alecta to enable a defined benefit accounting treatment and hence it is accounted for as a defined contribution plan. Contributions in 2011 were €10 million (2010: €10 million). Alecta’s target funding ratio in 2011 was 140% although the actual ratio at September 2011 stood at 113%. There are also a small number of multi-employer plans in the US in which AkzoNobel participates with annual contributions totalling less than €1 million.The expenses of plans classified as defined contribution plans in AkzoNobel totalled €154 million in 2011 (2010: €136 million).

Interest costs on defined benefit obligations for both pensions and other post-retirement benefits together with the expected return on plan assets in the net periodic costs table together comprise the net financing expenses on pensions and other post-retirement benefits of €59 million (2010: €102 million), the operating cost portion of which is disclosed in Note 5. The table below illustrates the weighted average life expectancy of the persons participating in the defined benefit pension plans.

Life expectancy

 

 

 

 

 

 

 

At December 31

In years

 

2010

 

2011

 

 

 

 

 

Currently aged 60

 

 

 

 

Male

 

25.5

 

26.1

Female

 

27.9

 

28.5

 

 

 

 

 

Currently aged 45, at age 60

 

 

 

 

Male

 

27.0

 

27.2

Female

 

29.2

 

29.5

Plan assets

The assumptions for the expected return on plan assets were based on a review of the historical returns of the asset classes in which the assets of the pension plans are invested. The historical returns on these asset classes were weighted based on the expected long-term allocation of the assets of the pension plans.

The primary objective with regard to the investment of pension plan assets is ensuring that each individual scheme has sufficient funds available to satisfy future benefit obligations. For this purpose so-called asset and liability management (ALM) studies are made periodically at each pension fund under responsibility of the fund managers. For each of the pension plans an appropriate mix is determined on the basis of the outcome of these ALM studies, taking into account the national rules and regulations.

Pension plan assets principally consist of long-term interest-earning investments, quoted equity securities and real estate. At year-end 2011 and 2010, plan assets did not include financial instruments issued by the company, nor any property occupied or other assets used by it. The weighted average pension plan asset allocation at year-end, 2011 and 2010, and the target allocation for 2012 for the pension plans by asset category are as follows:

Plan asset allocation

 

 

 

 

 

 

 

 

 

Plan assets at December 31

 

Target

In %

 

2010

 

2011

 

2012

Equity securities

 

16

 

15

 

14 – 16

Long-term interest earning investments

 

73

 

73

 

73 – 75

Real estate

 

2

 

2

 

1 – 3

Other

 

9

 

10

 

8 – 10

Total

 

100

 

100

 

100

At year-end 2011, an amount of £143 million (€170 million; 2010: £160 million or €186 million) remained in an escrow account on behalf of the AkzoNobel (CPS) Pension Scheme in the UK. The present minimum annual funding of this pension fund from the escrow account is £25 million. The current portion is included in trade and other receivables, and the non-current part in other financial non-current assets. For the latter see also Note 12.

Weighted average assumptions for the other post-retirement benefit plans were as follows:

Assumed healthcare cost trend rates at year-end

 

 

 

 

 

In %year

 

2010

 

2011

Healthcare cost trend rate
assumed for next year

 

6.7

 

6.6

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

 

3.8

 

4.0

Year that the rate reaches
the ultimate trend rate

 

2019–2024

 

2019–2030

Assumed healthcare cost trend rates can have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:

Sensitivity healthcare cost trends

 

 

 

 

 

In € millions

 

1% point increase

 

1% point decrease

(Increase)/decrease on total of service and interest cost

 

(2)

 

1

(Increase)/decrease on post-retirement benefit obligations

 

(15)

 

13

In the US, the Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced prescription drug benefits for retirees, as well as a federal subsidy to sponsors of post-retirement healthcare plans, which both began on January 1, 2006. We have recognized this reimbursement right as an asset under other financial non-current assets, measured at fair value amounting to €4 million at year-end 2011 (2010: €6 million).

Cash flows

We expect to contribute €484 million to our defined benefit pension plans in 2012. This includes a top-up payment of £135 million (€161 million) for the ICI Pension Fund and £100 million (€119 million) for AkzoNobel (CPS) Pension Scheme of which £25 million (€30 million) will be paid out of an escrow account. For other post-retirement benefit plans our contribution for 2012 is expected to be €31 million. In addition, we will contribute a further £200 million (€239 million) to the ICI Pension Fund in 2012 following the agreed termination of a £250 million (€298 million) asset-backed guarantee provided by wholly-owned subsidiary, ICI Receivables Funding Ltd.

Estimated benefit payments

 

 

 

 

 

In € millions

 

Pensions

 

Other post-retirement
benefits

2012

 

960

 

32

2013

 

954

 

32

2014

 

959

 

31

2015

 

961

 

31

2016

 

972

 

31

2017 - 2021

 

4,919

 

143

The figures in the above table are the estimated future benefit payments to be paid from the plans to beneficiaries over the next ten years.

Provisions for restructuring of activities

Provisions for restructuring of activities comprise accruals for certain employee benefits and for costs which are directly associated with plans to exit or cease specific activities and closing down of facilities. For all restructuring provisions a detailed formal plan exists and the implementation of the plan has started or the plan has been announced before the balance sheet date. Most restructuring plans are expected to be completed within two years from the balance sheet date. For more information, see Note 3.

Provisions for environmental costs

For details on environmental exposures, see Note 21.

Other provisions

Other provisions relate to a great variety of risks and commitments, including provisions for antitrust cases, claims, other long-term employee benefits such as long-service leave and jubilee payments. At year-end 2011, the provision for antitrust cases amounted to €134 million (2010: €158 million), see Note 21.

The majority of the cash outflows related to other provisions are expected to be within one to five years. In calculating the other provisions, a pre-tax discount rate of on average 3 percent has been used.

Keyword Search
Copyright © 2012 Akzo Nobel N.V.