Integrated Annual Report 2015
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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

8. Inventories

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 Geberit Group manages defined benefit plans for its employees in various countries. The Swiss pension plans and the UK pension plan are the major funded plans, which hold their assets in legally separate pension funds. Even after integrating the defined benefit plans of the newly acquired Sanitec Group, the biggest plans are still managed in Switzerland and Germany, which together account for 92% (PY: 98%) 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.

  2015 2014
  MCHF MCHF
Switzerland    
Benefit obligation (for funded retirement benefit plans) 554.9 504.3
Plan assets at fair value 496.1 471.0
Funded status -58.8 -33.3
     
Germany    
Benefit obligation (for unfunded retirement benefit plans) 210.6 208.6
Plan assets at fair value 0.0 0.0
Funded status -210.6 -208.6
Reimbursement rights 10.8 10.3
     
Other plans    
Benefit obligation (for funded retirement benefit plans) 39.6 0.0
Benefit obligation (for unfunded retirement benefit plans) 29.1 14.6
Plan assets at fair value 38.7 0.0
Funded status -30.0 -14.6
Reimbursement rights 6.4 5.9
     
Total    
Benefit obligation (for all retirement benefit plans) 834.2 727.5
Plan assets at fair value 534.8 471.0
Funded status -299.4 -256.5
Reimbursement rights 17.2 16.2

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 115% as of December 31, 2015 (December 31, 2014: 116.6%).

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.

The acquisition of the Sanitec Group added another pension plan in Switzerland. For the purpose of providing occupational benefits, Bekon-Koralle AG is affiliated with Swiss Life, a collective foundation under the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG), as well as with the Swiss Life collective foundation for supplementary provision. All regulatory benefits are fully reinsured by Swiss Life AG under a corresponding agreement.

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 labor-management contracts. The employer can change the conditions by applying provisos. There can be special commitments based on the labor-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 installments. Annuitization 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 annuitized, 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 annuitization, the statutory obligation to make (and review) adjustments is not currently seen to harbor 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
Annuity plans are governed by labor-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 harbor 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:

  2015 2014
  MCHF MCHF
Current service cost 31.1 24.7
Contributions of employees -8.9 -8.8
Net interest cost for retirement benefit plans 4.2 4.2
Net periodic pension cost 26.4 20.1

The service cost for the Swiss retirement benefit plans was MCHF 21.5 in 2015 (PY: MCHF 16.0) and for the German retirement benefit plans MCHF 8.6 (PY: MCHF 8.1). The net interest cost for the Swiss retirement benefit plans was MCHF 0.3 in 2015 (PY: MCHF -1.0) and for the German retirement benefit plans MCHF 3.6 (PY: MCHF 5.1).

The following table shows the remeasurements for the defined benefit plans in other comprehensive income in the Consolidated Statements of Comprehensive Income:

  2015 2014
  MCHF MCHF
Actuarial gains (-) / losses: 21.8 121.5
- of which from changes in demographic assumptions -0.3 0.0
- of which from changes in financial assumptions 22.2 109.1
- of which from experience adjustments -0.1 12.4
Return on plan assets (excluding interest based on discount rate) -6.9 -26.0
Return on reimbursement rights (excluding interest based on discount rate) -0.1 0.0
Asset ceiling adjustment 0.0 -13.2
Total pre-tax remeasurements recognized in other comprehensive income 14.8 82.3

The remeasurements recognized in other comprehensive income in the Consolidated Statements of Comprehensive Income in 2015 for the Swiss retirement benefit plans amounted to MCHF 15.6 (PY: MCHF 54.3) and for the German retirement benefit plans MCHF 2.7 (PY: MCHF 26.5).

The following tables show the changes in benefit obligations, plan assets, reimbursement rights and the asset ceiling from January 1 to December 31:

  2015 2014
  MCHF MCHF
Benefit obligation    
At beginning of year 727.5 590.6
Changes in scope of consolidation 87.6 0.0
Current service cost 31.1 24.7
Interest cost 11.9 15.2
Actuarial gains (-) / losses 21.8 121.5
New plans / plan adjustments 0.1 0.5
Benefits paid -26.8 -21.7
Translation differences -19.0 -3.3
Benefit obligation at end of year 834.2 727.5

  2015 2014
  MCHF MCHF
Plan assets at fair value    
At beginning of year 471.0 434.4
Changes in scope of consolidation 47.3 0.0
Interest income (based on discount rate) 7.2 10.4
Return on plan assets (excluding interest based on discount rate) 6.9 26.0
Contributions of employees 8.5 8.3
Contributions of employers 9.3 8.3
New plans / plan adjustments -0.1 0.0
Benefits paid -17.2 -16.4
Translation differences 1.9 0.0
Plan assets at fair value at end of year 534.8 471.0
     
Funded status at end of year -299.4 -256.5
Asset ceiling adjustment 0.0 0.0
Assets from defined benefit plans ( Note 10) -1.4 0.0
Net funded status at end of year -300.8 -256.5

  2015 2014
  MCHF MCHF
Fair value of reimbursement rights    
At beginning of year 16.2 13.7
Changes in scope of consolidation 0.0 0.0
Interest income (based on discount rate) 0.5 0.6
Return on reimbursement rights (excluding interest based on discount rate) 0.1 0.0
Contributions of employers 1.3 1.4
Contributions of employees 0.4 0.5
Benefits paid -0.3 -0.3
Translation differences -1.0 0.3
Fair value of reimbursement rights at end of year 17.2 16.2

As of December 31, 2015, the fair value of the reinsurance policies for the German retirement benefit plans was MCHF 10.7 (PY: MCHF 10.3).

  2015 2014
  MCHF MCHF
Asset ceiling    
At beginning of year 0.0 -13.2
Change 0.0 13.2
Translation differences 0.0 0.0
Asset ceiling at end of year 0.0 0.0

The following table provides an analysis of the fair value and composition of the plan assets.

    2015       2014
  Listed on
an active
market
Other Total Listed on
an active
market
Other Total
  MCHF MCHF MCHF   MCHF MCHF MCHF
Equity instruments 184.4 8.8 193.2   154.8 11.3 166.1
Bonds and other debt instruments 109.7 36.0 145.7   97.7 37.9 135.6
Real estate property 50.7 114.8 165.5   38.1 93.1 131.2
Cash and cash equivalents 15.4 0.0 15.4   34.9 0.0 34.9
Other 2.8 12.2 15.0   1.4 1.8 3.2
Total 363.0 171.8 534.8   326.9 144.1 471.0

The plan asset of the Swiss retirement benefit plans (excluding the benefit plan of Bekon Koralle AG) was MCHF 486.7 as of December 31, 2015 and the effective income on the plan assets was +2.6% in 2015 and +7.3% in 2014. As of the end of 2015, the plan assets included MCHF 5.2 (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:

      2015         2014
  Active
members
Deferred
members
Pen­sioners Total Active
members
Deferred
members
Pen­sioners Total
Plan members (number)                  
Swiss retirement benefit plans 1,248 4 487 1,739   1,154   478 1,632
German retirement benefit plans 4,065 500 371 4,936   4,006 437 328 4,771
Total plan members 5,313 504 858 6,675   5,160 437 806 6,403
                 
Benefit obligation (in MCHF)                  
Swiss retirement benefit plans 335.6 0.7 218.6 554.9   302.1   202.2 504.3
German retirement benefit plans 147.7 22.9 40.0 210.6   156.8 20.7 31.1 208.6
Total benefit obligation 483.3 23.6 258.6 765.5   458.9 20.7 233.3 712.9
Share in % 63.1 3.1 33.8 100.0   64.4 2.9 32.7 100.0

The weighted average duration of the benefit obligation for the Swiss retirement benefit plans is approx. 16 years (PY: approx. 15 years) and for the German retirement benefit plans approx. 12 years (PY: approx. 12 years).

Employer contributions of MCHF 8.5 are expected for the Swiss retirement benefit plans in 2016. 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 %):

  2015   2014
  CH   DE   CH   DE
Discount rate 0.8   1.8   1.2   1.9
Salary increase rate 1.2   0 - 2.5   2.0   2.5
Pension increase rate 0.0   2.0   0.0   2.0
Mortality BVG 2010 generations table 2005G actuarial tables BVG 2010 generations table 2005G actuarial tables

The trend for sickness costs 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 were changed. Every assumption change was analyzed 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
Discount rate      
Increased by 50 basis points -7.5%   -5.5%
Reduced by 50 basis points +8.6%   +6.3%
Salaries      
Increased by 25 basis points +0.45%   +0.03%
Reduced by 25 basis points -0.44%   -0.03%

In addition, the Group’s income statement for 2015 includes expenses for defined contribution plans of MCHF 10.0 (PY: MCHF 2.5).

17. Participation plans

18. Deferred tax assets and liabilities

19. Other non-current liabilities and provisions

20. Contingencies

21. Capital stock and treasury shares

22. Earnings per share

23. Other operating expenses, net

24. Financial result, net

25. Income tax expenses

26. Operative Leasing

27. Research and development cost

28. Cashflow figures

29. Segment reporting

30. Related party transactions

31. Foreign exchange rates

32. Subsequent events

33. Group companies as of December 31, 2015