5. Other information

The GF Corporation maintains pension plans in various countries. The accounting for Swiss pension plans are based on the financial statements of the pension plan according to Swiss GAAP FER 26. Plans in other locations are accounted for according to their local regulations. The employee benefit plan in the USA was not closed as planned in the second half of 2019. With the exception of pension plans in Germany, the employee pension plans have their own assets in addition to the respective pension obligations.

The table shows the economic benefit and the economic obligation at the end of the year under review and for the previous year, as well as the changes in pension benefit expenses.

The economic part of the Corporation in the patronage funds amounted to CHF 0 million (previous year: CHF 9 million). The decrease is due to the decision of the Board of Trustees of the Fondazione di previdenza per il personale della Precicast to create a reserve to finance the purchase into the higher coverage ratio of the Pension Fund Georg Fischer compared to the present employee benefits foundation of GF Precicast SA. The reserve will be consummated when the employees of the GF Precicast SA are integrated into the Pension Fund Georg Fischer.

There is one pension plan with surplus with a negligible overfunded position. The Georg Fischer Pension Fund is no longer overfunded (previous year: CHF 32 million), due to changes in technical parameters.

The pension plans underfunded in the amount of CHF 21 million (previous year: CHF 20 million) are based on the defined benefit plans in Great Britain and the USA. The amount of the underfunding depends significantly on the value of the securities and on the discount rate and the expected mortality rate used in the calculation of the pension liabilities. The total economic obligation, which represents the expected cash outflow in the medium term, amounts to CHF 16 million (previous year: CHF 14 million). Due to the postponed liquidation of the pension fund in the USA, and the unfavourable trend in the discount rate in the USA and Great Britain, the economic obligation increased by CHF 2 million. The expense is included in the pension fund expenses for the period.

The recognized economic obligation from the pension plans with no assets of their own, i.e. unfunded plans, amounted to CHF 34 million (previous year: CHF 33 million) and concerns primarily the employee pension plans in Germany and Sweden. The increase in the economic obligation in the amount of CHF 3 million is included in the pension fund expenses for the period.

Loans from pension funds in the amount of CHF 1 million (previous year: CHF 4 million) are current account balances of employee benefit plans and patronage foundations at Georg Fischer AG. 

The following table summarizes the pension benefit expenses in the year under review and for the previous year:

Movements in the recognized economic obligations from pension plans and the employer-paid contributions for the year under review amounted to CHF 32 million (previous year: CHF 32 million) and are included in “Personnel expenses”.

The employee benefit plans of the Corporation comply with the legislation in force in each country. Employee benefit plans are mostly institutions and foundations that are independent of the Corporation. They are usually financed by both, employee and employer contributions.

The economic impact of the employee benefit plans is assessed each year. Surpluses or deficits are determined by means of the annual statements of each specific benefit plan, which are based either on Swiss GAAP FER 26 (Swiss benefit plans) or on the accepted methods in each foreign country (foreign plans). An economic benefit is capitalized if it is permitted and intended to use the surplus to reduce the employer contributions. If employer contribution reserves exist, they are also capitalized. An economic obligation is recognized as a liability if the conditions for an accrual are met. They are reported under “Employee benefit obligations”. Changes in the economic benefit or economic obligation, as well as the contributions incurred for the period, are recognized in “Personnel expenses” in the income statement.

Non-current loans to associates relate to the divestment of the two iron foundries in 2018, see also note 4.1 (4.1.1 Additions, disposals and mergers). The change is explained by an ordinary increase of CHF 21 million due to a credit facility drawn over the year 2019 that existed already in 2018, the granting of an additional loan of up to CHF 22 million of which CHF 3 million were drawn, impairments of CHF 7 million as well as movements in the foreign exchange rate. Investment in associates was reduced by CHF 3 million due to the application of the equity method as well as a further reduction of CHF 3 million due to impairments (see also note 3.2).

The impairments were required due to losses at the divested entities and the resulting requirement for an operational and financial restructuring. The financial restructuring included the subordination of CHF 47 million of outstanding loans. In order to reflect the subordination the interest rate was increased to 6.5% (previous year: Stepped-up interest rates of 3% – 5%). The loans have an expected maturity of 4 years (previous year: 5 years).

The increase in non-current loans and receivables to third parties is explained by the granting of a loan to a third party following the sale of the iron foundry in Herzogenburg (Austria), in 2019.

The recoverability of non-current loans and receivables is assessed based on the debtor’s ability to repay on time and in full. In order to build this assessment management regularly observe the debtor’s adherence to the interest payment and principal amortization schedule. Further, as well as in the case of investments in associates, management assess the debtor’s ability of going concern. Assessing the debtor’s going concern assumptions requires the management to assess the viability of the debtor’s business model which is inherently subject to a higher level of estimation uncertainty.

Non-current loans and receivables are recognized at amortized cost. In addition, an impairment is recorded in case the assumed present value of expected cash flows is below the carrying value of the non-current loans and receivables.

Investments in associates and non-current loans to associates are assessed for their recoverability holistically (net investment approach). First, investments and non-current loans are recorded at their actual values. Subsequently, the value of the investment is increased for the proportionate share in undistributed profits and reduced for the proportionate share in incurred losses as well as dividends obtained. In case, the value of the investment is reduced to zero, further proportionate shares in losses are allocated to the non-current loans. The value of the investment and the non-current loans are further reduced in case of impairments.

Deferred tax assets and liabilities are offset within GF Corporate Companies when there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred taxes related to the same fiscal authority. The effect of offsetting at the GF Corporate Company level amounted to CHF 46 million (previous year: CHF 40 million). Deferred tax assets and liabilities are calculated based on the actually expected income tax rates for each GF Corporate Company. For further information on the recognition of tax loss carryforwards, see note 1.5.

Temporary differences associated with investments in subsidiaries, for which no deferred tax liabilities have been recognized, amounted to CHF 479 million as of 31 December 2019 (previous year: CHF 449 million).

The consolidated financial statements were approved and released for publication by the Board of Directors on 20 February 2020. They must also be approved at the Annual Shareholders’ Meeting.

The novel coronavirus identified in China in January 2020 will have both operational and financial implications for GF. The Executive Committee assumes that the affected GF Corporate Companies will reach a normal mode of operations in the course of the second quarter of 2020.

Regarding the adjustment of the Board of Directors and the Executive Committee after the balance sheet date, reference is made to the corresponding explanation in the Corporate Governance Report (changes after the balance sheet date).