Annual Report 2013

Notes to the Financial Statements

21. Acquisitions

Advanced Environmental Solutions (Ireland) Limited acquired the waste collection business of Kildare County Council with effect from 22 August 2011 and the waste collection business of Wexford County Council with effect from 6 February 2012 for a combined consideration of 3,334,000. Both acquisitions have been accounted for using the acquisition method of accounting. Details of the provisional fair values, fair value adjustments and final fair values of the assets acquired are set out below.

 

Provisional fair values

Fair value Adjustment

Final fair values

 

2012

2013

2013

 

’000

’000

’000

 

Tangible assets

651

0

651

Net current assets

8

0

8

Net assets acquired

659

0

659

Goodwill arising on acquisition (Note 7)

2,675

0

2,675

Total consideration (including transaction costs)

3,334

0

3,334

 

 

Satisfied by:

 

Cash

1,708

0

1,708

Non-cash consideration

1,626

0

1,626

Total consideration

3,334

0

3,334

 

 

 

 

22. Capital commitments

Expenditure contracted for but not provided is estimated to be as follows:

 

2013

2012

THE GROUP

’000

’000

Tangible asset commitment

141,690

5,236

 

141,690

5,236

 

 

THE COMPANY

 

Tangible asset commitment

462

0

 

462

0

 

 

 

The Group is developing two wind farms at Mount Lucas, Co. Offaly and Bruckana on the borders of counties Kilkenny, Laois and Tipperary and has entered into a number of contracts.

23. Operating lease commitments

At 27 March 2013 the Group had annual commitments under non-revocable operating leases expiring as follows:

 

Land and buildings

Plant and machinery

Land and buildings

Plant and machinery

2013

2013

2012

2012

THE GROUP

’000

’000

’000

’000

Operating leases which expire:

Within one year

49

384

55

375

Within one to five years

322

1,271

372

960

After five years

681

0

673

0

 

1,052

1,655

1,100

1,335

 

 

 

 

Other

Plant and machinery

Other

Plant and machinery

2013

2013

2012

2012

THE COMPANY

’000

’000

’000

’000

Operating leases which expire:

Within one year

0

5

0

31

Within one to five years

0

180

0

116

After five years

0

0

0

0

 

0

185

0

147

 

 

 

24. Guarantees and contingent liabilities

In the normal course of business the Company provides guarantees in respect of liabilities of certain of its subsidiaries.

From time to time Group companies are party to various negotiations over contractual commitments or obligations, various legal proceedings and in respect of industrial relations matters arising in the normal course of business. It is the opinion of the Directors that these negotiations and proceedings will have no material adverse impact on the financial position of the Group.

25. Pension schemes

(i) Defined benefit schemes

(a) Description of the Bord na Móna pension schemes

The Group operates three contributory defined benefit pension schemes covering the majority of employees, each of which is funded by contributions from the Group and the members. Contributions are based on the advice of a professional qualified actuary obtained at regular intervals at average rates of pensionable emoluments.

The two principal schemes in operation are the General Employees Superannuation Scheme (GESS) which covers management, professional and clerical employees and the Regular Works Employees Superannuation Scheme (RWESS) which covers remaining categories of employees. A third scheme BnM Fuels Pension scheme covers employees who became Group employees on the acquisition of the Coal Distributors Group, Sutton Group and Sheehan and Sullivan.

Bord na Móna plc has also awarded unfunded pension benefits to certain retired employees including former managing directors and their dependants. The future cost of funding these pensions is recognised in the balance sheet at 4,688,000 based on an actuarial valuation at the balance sheet date (2012: 4,395,000).

(b) Actuarial valuations and funding position of schemes

The actuarial method used (aggregate method) determines a contribution rate which should, if continued until the last of the present members retires, provide a fund which is sufficient to provide their benefits. The assumptions which have the most significant effect on the results of the actuarial valuation are those relating to the return on investments and the rate of increase in remuneration.

The most recent full valuations for the GESS and RWESS schemes were prepared as of 31 March 2011 and the BnM Fuels scheme valuation was prepared as of 1 April 2012. In the actuarial valuations it was assumed that the schemes’ investments will earn a real rate of investment return of 3% above the rate of wage inflation. In the latest actuarial valuations the market value of the schemes’ investments was 241.5 million.

The most recent actuarial valuations of these three schemes showed the following :

(i) a deficit of 34.2 million on the GESS scheme

(ii) a deficit of 4.8 million on the RWESS scheme

(iii) a deficit of 2.5 million on the BnM Fuels scheme

At March 2011 after allowing for expected future increases in earnings and pensions in payment, the valuations indicated that the actuarial value of total scheme assets was sufficient to cover 72% and 97% of the benefits that had accrued to the members of the GESS and RWESS schemes respectively at the valuation dates. These actuarial valuations are available for inspection by members of the schemes but not for public inspection. In relation to the BnM Fuels scheme the actuarial value of total scheme assets was sufficient to cover 74% of the benefits that had accrued to members at the valuation date.

In common with many other defined benefit pension schemes, all three defined benefit plans are in net deficits, when the total value of the respective scheme assets is compared to the actuarial value of the accrued benefits of the members.

A funding proposal to address the RWESS scheme benefits was approved by the Board and shareholders and active members during the 2010 financial year. The revised funding arrangement required the active members to increase their contribution rate by 1.5% of their pensionable salary. The Group agreed to match the active members’ contributions. The approved terms of the revised funding proposals include the provision of increased benefits for members under the N200, which provided for improved benefits for members whose uplifted pensionable salary falls below a threshold multiple of the State pension. The other terms of the restructuring arrangements included a cap on pensionable salaries and the closure of the scheme to new entrants. The increased benefits provided to those active members, effective from 1 January 2010, accrue over future service from 1 January 2010 until the sixtieth birthday of each member. The present value of the estimated cost at 27 March 2013 was 7,800,000 and the Group will meet the capital cost by way of fixed annual capital payments by 30 June over a period of no more than twelve years.

Discussions in relation to the GESS deficit are ongoing with the various stakeholders with a view to formulating an agreed funding proposal. Given the recent regulation changes and the risk reserve funding requirement it is expected that a funding proposal subject to approval by the required parties will be in place within the next number of months. Current pensions regulations allow in situations such as this, for a funding solution over a period of up to 10 years. A funding solution over such a period would allow the scheme to benefit from both additional employer and employee contributions and also from a potential recovery in global equity markets, which would increase the value of the scheme assets.

Discussions in relation to the BnM Fuels pension deficit are also ongoing with the various stakeholders to reach an agreement on funding proposal. A number of measures are under consideration and a funding solution that will result in additional contributions by the Group over a period of ten years and benefits changes for the members.

(c) FRS 17 ‘Retirement Benefits’

For the purposes of FRS 17 the actuarial valuations of the defined benefit schemes were updated to the balance sheet date by a qualified independent actuary. A full actuarial valuation of the unfunded pensions was completed by a qualified independent actuary at the balance sheet date.

The Turf Development Acts 1946 to 1998 and the rules governing the Bord na Móna GESS and RWESS pension schemes lay down in considerable detail the benefits that are to be provided to members. They also stipulate the shared contributions to be paid by both Bord na Móna and the contributing members. This does not conform to the ‘balance of cost’ defined benefit approach. For the purposes of reporting in accordance with FRS 17 at 27 March 2013, 100% of the pension scheme deficits on the RWESS, GESS and BnM Fuels defined benefit schemes have been recognised in the financial statements. The RWESS defined benefit scheme had a surplus at March 2012 and the Group has accounted for its share of the opening pension scheme surplus on a 50:50 basis between members and the Group. As 100% of the current service cost and finance costs were charged to the profit and loss account in the past, this amount has been reflected in the statement of recognised gains and losses during the year ended 27 March 2013 as noted below.

Current service costs, determined using the projected unit method, and any past service items stemming from benefits enhancements or curtailments are dealt with as components of operating costs or set against provisions as appropriate. The interest cost associated with the pension schemes’ liabilities together with the expected return on pension schemes’ assets are included within other finance income and charges in the profit and loss account.

The amounts recognised in the Balance Sheet are as follows:

 

March 2013

March 2012

 

’000

’000

 

 

 

Fair value of the schemes’ assets

271,717

251,169

Present value of schemes’ liabilities and unfunded pensions liabilities

(330,411)

(296,560)

Members’ share of surplus on RWESS scheme

0

(1,115)

Revised present value of schemes’ liabilities and unfunded pension liabilities

(330,411)

(297,675)

Pension deficit

(58,694)

(46,506)

Related net deferred tax asset (Note 17(e))

6,751

5,264

Net pension deficit

(51,943)

(41,242)

 

 

The net pension deficit is comprised as follows:

 

Pension asset

0

1,115

Related net deferred tax liability (Note 17(e))

0

(139)

Pension asset net of deferred tax as per Group balance sheet

0

976

Pension deficit

(58,694)

(47,621)

Related net deferred tax asset (Note 17(e))

6,751

5,403

Pension deficit net of deferred tax as per Group balance sheet

(51,943)

(42,218)

Net pension deficit

(51,943)

(41,242)

 

 

 

The amounts recognised in the Profit and Loss Account are as follows:

 

March 2013

March 2012

 

’000

’000

Analysis of the amount charged to operating profit

 

 

Current service cost

(2,710)

(2,368)

 

(2,710)

(2,368)

Analysis of the amount credited to other finance income

 

Expected return on schemes’ assets

12,169

14,919

Interest on schemes’ liabilities

(11,870)

(13,321)

Net return on finance income (Note 5)

299

1,598

Total profit and loss account charge

(2,411)

(770)

Actual return on schemes’ assets

23,067

14,597

 

 

 

The amounts recognised in the Statement of Total Recognised Gains and Losses are as follows:

 

March 2013

March 2012

 

’000

’000

 

Actual return less expected return on schemes’ assets

10,898

(322)

Experience gains arising on schemes’ liabilities

7,050

4,362

Changes in assumptions underlying the present value of schemes’ liabilities

(35,310)

(39,845)

Actuarial (loss) recognised

(17,362)

(35,805)

Less members’ share of movement on scheme surplus during the financial year

1,115

4,426

Actuarial loss recognised by the Group

(16,247)

(31,379)

 

 

 

The cumulative actuarial loss recognised in the statement of total recognised gains and losses up to and including the financial year ended 27 March 2013 is 73,139,000 (2012: 56,892,000).

Balance Sheet as at 27 March 2013

 

Scheme

Scheme

Scheme

Assets

Liabilities

Deficit

Movement in schemes’ assets and liabilities

’000

’000

’000

 

 

 

 

At 30 March 2011

240,225

(259,553)

(19,328)

Service cost charged to the profit and loss account

0

(2,368)

(2,368)

Interest on liabilities

0

(13,321)

(13,321)

Expected return on assets

14,919

0

14,919

Members’ share of increased pension surplus at start of year

0

4,426

4,426

Actual less expected return on scheme assets

(322)

0

(322)

Experience gains on liabilities

0

4,362

4,362

Change in actuarial assumptions

0

(39,845)

(39,845)

Contributions by members

3,564

(3,564)

0

Employer’s contributions paid

4,971

0

4,971

Benefits paid

(12,188)

12,188

0

At 28 March 2012

251,169

(297,675)

(46,506)

 

 

 

 

Service cost charged to the profit and loss account

0

(2,710)

(2,710)

Interest on scheme liabilities

0

(11,870)

(11,870)

Expected return on assets

12,169

0

12,169

Members’ share of reduced pension surplus at start of year

0

1,115

1,115

Actual less expected return on assets

10,898

0

10,898

Experience gains on liabilities

0

7,050

7,050

Change in actuarial assumptions

0

(35,310)

(35,310)

Contributions by members

3,411

(3,411)

0

Employer’s contributions paid

6,470

0

6,470

Benefits paid

(12,400)

12,400

0

At 27 March 2013

271,717

(330,411)

(58,694)

 

 

 

 

All of the schemes’ liabilities with the exception of the liability in respect of the pensions paid to former managing directors are funded.

Expected contributions for the year to 26 March 2014 are 5,275,000.

Scheme assets

At 27 March 2013 the assets were invested in a diversified portfolio that consisted primarily of equity and debt securities, properties and cash. The fair value of the assets at year end was 271,717,000 (2012: 251,169,000). The fair value of the asset categories as a percentage of total schemes’ assets were as follows:

 

March 2013

March 2012

 

%

%

 

Equities

42.3

50.8

Bonds

36.1

39.1

Property

4.7

5.0

Cash

16.9

5.1

Total

100

100

 

 

 

The schemes’ assets do not include any ordinary shares issued by the Company. In addition the schemes’ assets do not include property occupied by, or other assets used by the Company.

Basis of expected return on schemes’ assets

The expected return on the schemes’ assets is determined based on the weighted average expected return of the underlying asset class. For equities the expected return is 7.0% and is expected to exceed that of bonds by on average 3.5%. The expected rate of return on cash is 1% and for property assets the expected rate of return is rate of return is 6.0%. The pension levy deduction is 0.6%. The overall expected rate of return on scheme assets at 27 March 2013 was 4.08% (2012: 4.88%).

Financial assumptions

The main financial assumptions (long term actuarial assumptions) used in the valuations were:

 

March 2013

March 2012

 

 

 

Rate of increase in salaries

2.50%

3.00%

Rate of increase in pensions in payment - RWESS scheme

1.25%

1.25%

Rate of increase in pensions in payment - GESS scheme

0.00%

0.00%

Discount rate

3.00%

4.00%

Inflation rate

1.75%

1.75%

 

 

 

Mortality assumptions

The mortality assumptions are based on standard tables reflecting typical pensioner mortality. The tables used are based on mortality rates in the year 2030 for all employees without allowance for additional improvements in respect of members of the RWESS.

Retiring today

March 2013

March 2012

Males (RWESS)

20.5

20.5

Females (RWESS)

23.4

23.4

 

 

Males (Other)

22.5

22.3

Females (Other)

23.9

23.7

 

 

 

A male is assumed to be three years older than his spouse.

History of defined benefit obligations, assets and experience gains and losses

The movement on the schemes’ assets and liabilities for the current and previous four years are as follows:

 

2013

2012

2011

2010

2009

 

’000

’000

’000

’000

’000

 

Defined benefit present value of obligation

(330,411)

(296,560)

(254,012)

(252,417)

(237,834)

Fair value of plan assets

271,717

251,169

240,225

233,444

186,484

Pension deficit

(58,694)

(45,391)

(13,787)

(18,973)

(51,350)

 

 

 

 

 

Experience adjustments arising on:

 

 

 

 

the schemes’ liabilities

7,050

4,362

5,914

7,220

7,686

as a percentage of the schemes’ liabilities at March

2.1%

1.5%

2.3%

2.9%

3.2%

 

 

 

 

 

the schemes’ assets

10,898

(322)

(4,567)

40,015

(72,302)

as a percentage of the schemes’ assets at March

4.0%

(0.1%)

(1.9%)

17.1%

(38.8%)

 

 

 

 

 

All scheme assets are stated to bid market values.

Company pension fund liability

 

2013

2012

 

’000

’000

 

 

 

At the beginning of the financial year

4,395

3,922

Utilised during year

(346)

(346)

Charge for year

639

819

At the end of the financial year

4,688

4,395

 

 

 

Sensitivity analysis for principal assumptions used to measure scheme liabilities

There are a number of inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the Group’s defined benefit pension schemes. The table below outlines the estimated impact on plan liabilities resulting from changes to key actuarial assumptions, whilst holding all other assumptions constant.

Assumption

Change in Assumption

Present value of plan liabilities

Impact on plan liabilities

% Impact on plan liabilities

 

 

 

 

 

An increase in the discount rate

0.25%

319,451

(10,960)

(3%)

An increase in salary inflation

0.25%

333,592

3,181

1%

An increase in pension escalation

0.25%

338,191

7,780

2%

 

 

 

 

 

(ii) Defined contribution schemes and personal retirement savings accounts (PRSA)

The Group made employer contributions payable under a defined contribution scheme in respect of certain employees during the year. Contributions payable by the employer to the defined contribution schemes in the year to 27 March 2013 amounted to 797,000 (2012: 669,000) which were charged to the profit and loss account and 81,000 (2012: 70,000) was payable at year end.

In addition and in compliance with the provisions of the Pensions Act 1990 (as amended), Bord na Móna plc has appointed personal retirement savings accounts (PRSAs) providers. During the year to 27 March 2013 the Group contributed 249,000 (2012: 395,000) to PRSA’s on behalf of its employees. This was charged to the profit and loss account and 1,280 (2012: 1,802) was payable at year end.