Dechra Pharmaceuticals PLC

Dechra Pharmaceuticals PLC

Annual Report and Accounts for the year ended 30 June 2012

21. Employee Benefit Obligations

The Group sponsors defined benefit arrangements in certain countries, the most material being a defined benefit pension plan in the Netherlands. This is a funded career average pay arrangement, where pensionable salary is subject to a cap. The arrangement is financed through an insurance contract.

The other defined benefit pension arrangements operated by the Company are unfunded: Jubilee awards of £61,000 for employees in the Netherlands and Germany and early retirement plan provisions in Germany of £2,000 are recognised within other payables in the statement of financial position as at 30 June 2012.

The pension cost relating to the defined benefit pension arrangement in the Netherlands is assessed in accordance with the advice of an independent qualified actuary using the projected unit method.

The major actuarial assumptions used by the actuary were:

2012
Discount rate4.60%
Expected return on assets4.60%
Inflation assumption1.90%
Salary growth2.40%
Rate of increase in accrued pensions of active members1.90%
Rate of increase in pensions in payment0.00%
Rate of increase in pensions in deferment0.00%

In valuing the liabilities of the pension scheme at 30 June 2012, mortality assumptions have been made as indicated below.

The mortality assumption follows the AG Prognosetafel 2010-2060 mortality tables with an experience adjustment in line with the ES-P2 tables as published by the Dutch Alliance of Insurers.

The assumptions used by the Group are the best estimates chosen by the Directors from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice.

2012
£'000
Present value of funded defined benefit obligations(2,801)
Fair value of scheme assets2,438
Net pension scheme deficit(363)

Movements in Present Value of Defined Benefit Obligations

2012
£'000
Defined benefit obligation at acquisition2,745
Service cost37
Interest cost12
Employee contributions7
Defined benefit obligations at end of the period2,801

Movements in Fair Value of Scheme Assets

2012
£'000
Fair value of scheme assets at acquisition2,404
Expected return on scheme assets10
Additional charges(23)
Employer contributions40
Employee contributions7
Fair value of scheme assets at end of the period2,438

Analysis of the Amount Charged to the Income Statement

2012
£'000
Service cost37
Expected return on assets(10)
Interest on liabilities12
Insurance charges23
Net pension expense62

Scheme Assets

The Group's defined benefit pension scheme in the Netherlands is financed through an insurance contract. Under this contract, a market price for the assets in respect of this insurance contract is not available. In accordance with IAS 19 for such insurance policies, an asset value has been calculated by discounting expected future cash flows. The discount rate used for this calculation reflects the risk associated with the scheme assets and the maturity or expected disposal date of those assets.

The fair value of the scheme's assets is as follows:

2012
£'000
Discount rate used to value assets4.60%
Total fair value of assets2,438
Actual return on scheme assets10

The long term rate of return on pension plan assets is determined by aggregating the expected return for each asset class over the strategic asset allocation as at 30 June 2012. This rate of return is then adjusted for any expected profit sharing based on market related returns on notional loans.

The scheme's assets do not include any of the Group's own financial instruments or any property occupied by or other assets used by the Group.

The employer contributions expected to be paid into the scheme for the next financial period amount to £480,000.

History of Amounts in the Current Period

2012
£'000
Present value of funded defined benefit obligations(2,801)
Fair value of scheme assets2,438
Deficit in the scheme(363)

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