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the expected profit. The percentage of completion method
requires the Group to estimate the completion costs and
involves making estimates dependent on factors which may
change over time and could therefore have a significant impact
on current values. Should actual cost differ from estimated
cost, this variation will impact future results.
(e) Taxes
Consolidated companies are subject to different tax
jurisdictions. A significant degree of estimation is needed
to establish the expected tax payable globally. There are
a number of transactions for which the relevant taxes are
difficult to estimate at year end. The Group records liabilities
for outstanding tax assessments on the basis of estimates,
possibly made with the assistance of outside experts.
(f) Inventory valuation
Inventories are recorded at the lower of purchase cost
(measured using the weighted average cost formula for non-
ferrous metals and the FIFO formula for all others) and net
realisable value, net of sale costs. Net realisable value is in turn
represented by the value of firm orders in the order book, or
otherwise by the replacement cost of supplies or raw materials.
If significant reductions in the price of non-ferrous metals
are followed by order cancellations, the loss in the value of
inventories may not be fully offset by the penalties charged to
customers for cancelling their orders.
(g) Employee benefit obligations
The present value of the pension funds reported in the
financial statements depends on an independent actuarial
calculation and on a number of different assumptions.
Any changes in assumptions and in the discount rate used
are duly reflected in the present value calculation and may
have a significant impact on the consolidated figures. The
assumptions used for the actuarial calculation are examined by
the Group annually.
Present value is calculated by discounting future cash flows at
an interest rate equal to that on high-quality corporate bonds
issued in the currency in which the liability will be settled and
which takes account of the duration of the related pension
plan.
Further information can be found in Note 15. Employee benefit
obligations and Note 21. Personnel costs.
(h) Incentive plan
The plan for 2011-2013, involves granting options to some
of the Group’s employees and co-investing part of their
annual bonuses. These benefits are granted subject to the
achievement of operating and financial performance objectives
and the continuation of a professional relationship for the
three-year period 2011-2013. The estimate of the plan’s
financial and economic impact has therefore been made on the
basis of the best possible estimates and information currently
available.
Further information can be found in Note 21. Personnel costs.
