The purpose of the provision for reorganisation costs is to cover the costs arising from reorganisation measures. Most of the provision is needed for redundancy schemes, bridging payments and the redeployment of staff whose jobs have disappeared as a result of reorganisations.
The provision for soil remediation is for managing and remedying environmental damage. The provision is calculated using an average discount rate of 1.5% (1.5% in 2017).
‘Other provisions’ include provisions for losses arising from accidents and fire, collateral for settlements with carriers and provisions for staff-related matters. The release from ‘Other provisions’ includes a release relating to the settlement of the monies reserved for personnel expenses that had to be paid out with retrospective effect.
A provision is recognised in the balance sheet whenever the Group has a legally enforceable or de facto liability as a consequence of a past event and it is probable that the settlement of that liability will entail an outflow of funds.
Provisions are determined by calculating the net present value of expected future cash flows based on a pre-tax discount rate that reflects both the current market valuations of the time value of money and, where necessary, the specific risks relating to the liability.
Reorganisation costs and inactivity schemes
Provisions are made in connection with reorganisations if a formal, detailed plan has been drawn up for the reorganisation, and the reorganisation is either under way or has been publically announced. No provision is made for future operating expenses. Provisions for reorganisations relate mainly to redundancy schemes, bridging payments and the redeployment of redundant staff.
Provision for soil remediation
The provision for soil remediation work is intended to cover the costs incurred for the upkeep or repair of operating assets. In line with the Group's published environmental policy and the applicable legal requirements, provisions for the control and remediation of environmental contamination are formed when the pollution occurs or when it is discovered to have occurred.
A provision for onerous contracts is included in the balance sheet if the financial benefits that the Group expects to derive from a contract are less than the unavoidable costs of satisfying the contractual commitments.
The provision is measured at the present value of the anticipated net costs of continuing the contract or, where this is lower, the present value of the anticipated costs of termination of the contract, being any compensation or penalty entailed by the breach of contract. Before the provision is formed, an impairment loss is applied to the assets to which the contract relates.
Provisions are formed for losses arising from fire, accidents, guarantees issued, claims and other risks.