VINCI - 2005 annual report

CONSOLIDATED FINANCIAL STATEMENTS
23. RETIREMENT AND OTHER EMPLOYEE BENEFIT OB-
LIGATIONS
The provisions for retirement and other employee benefit obligations
amounted to €723.9 million at 31 December 2005 (including the
part at less than one year of €654.0 million) against €713.1 million
at 31 December 2004 (including the part at less than one year of
€677.6 million). These comprise on one hand provisions for retirement
23.1 RETIREMENT BENEFIT OBLIGATIONS
The provisions for retirement benefit obligations amount to €667.4
million at 31 December 2005 (including the part at less than one year of
€63.9 million) against €658.6 million at 31 December 2004 (including
the part at less than one year of €25.9 million). They cover provisions for
both lump-sums on retirement and also supplementary defined benefit
retirement plans.
VINCI’s obligations in respect of supplementary retirement benefits under
defined benefit plans fall into three categories:
– obligations borne directly by VINCI or its subsidiaries, covered by provisions
recognised in the consolidated balance sheet:
- for the French subsidiaries, these are lump-sums on retirement and
supplementary defined benefit retirement plans, such as those of Auxad
(formerly Compagnie Générale d’Electricité), RTG (formerly St Gobain)
or other in-house plans of which the beneficiaries are today mainly
retired;
benefit obligations for €667.4 million and on the other hand provisions
for other employee benefits for €56.4 million. The part at less than one
year of these provisions is shown under other current liabilities on the
balance sheet and at 31 December 2005 amounted to €69.9 million against
€35.5 million at 31 December 2004.
- for the German subsidiaries, there are three internal plans within the
Group, including one so-called “direct promises” plan. The other two
plans are now closed: the “Fürsorge” plan for former employees of
G+H Montage, closed in 2001, and the Eurovia GmbH subsidiaries’
plan, closed in 1999.
– obligations that are pre-financed through contracts with insurance
companies. This relates mainly to the obligations covered by two policies
taken out with Cardif of which certain Group executives are
beneficiaries.
– obligations covered by external pension funds; for the most part these
relate to the UK subsidiaries (VINCI PLC (Norwest Holst), Freyssinet
UK, Ringway, VINCI Energies UK, VINCI Park UK) and the CFE Group
in Belgium.
The retirement benefit obligations that are covered by provisions mainly
relate to France, Germany and Belgium. For these three countries, the
provisions are calculated on the basis of the following assumptions:
31/12/2005 31/12/2004
Discount rate 4.50% 4.75%
Inflation rate 2.0% 2.0%
Rate of salary increases 2%-3% 2%-3%
Rate of pension increases 1.5%-2.5% 1.5%-2.5%
Probable average remaining working life of employees 10-15 years 10-15 years
For the other countries, actuarial assumptions are selected on the basis of
current local conditions. They are adjusted to reflect interest rate and
mortality trends. For the UK, the discounting and inflation rates used at
31 December 2005 were respectively 5% and 2.75%.
For each plan, the expected return on plan assets is determined using the
building block method, which breaks the expected return down into three
parts: money market investments, investments in bonds and investments
in equities. The return on equities is determined by adding 3% to the
long-term return on government bonds. The money and bond market
components are determined from published market indexes. Using this
method, the average return on plan assets adopted in the UK is 6.54%.
Financial assets are valued at their fair value at 31 December 2005. Book
value is adopted for those assets invested in the insurance company’s
general funds.
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