Urenco Annual Report 2022

14. Derivative financial instruments continued The Company is subject to currency exposures arising from transactions made by other members of the Urenco Group, in US dollar and euro. The functional currency of the Company is sterling. It is the policy of the Company to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts on behalf of the Group. The Company hedges the net cash flows of its European business, by selling US dollar customer revenues, buying forward sterling required to meet the costs of the UK operations and selling the remaining US dollars to buy euros. The Company reduces the impact of changes in foreign exchange rates by using a progressive rolling programme of buying and selling currencies over a period of up to four years ahead. Under cross currency interest rate swap contracts, the Company agrees to exchange the difference between fixed interest in euro and Yen currency, into fixed interest in sterling, and from fixed interest in sterling to fixed interest in US dollars on agreed notional principal amounts. Such contracts enable the Company to mitigate the risk of changing foreign currency exchange rates on the fair value of interest payments in foreign currency, and the fair value of investments in subsidiaries at the Urenco Group level. The fair value of cross currency interest rate swaps at the reporting date is determined by discounting the future cash flows using the curves at the reporting date. The average interest rate is based on the outstanding balances at the end of the financial year. 15. Retirement benefit obligations The Company operates a defined benefit pension scheme and the pension cost relating to the defined benefit scheme is assessed in accordance with the advice of independent, professionally qualified actuaries using the projected unit credit method. The defined benefit plan is administered by a separate fund that is legally separated from the Company. The trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the plan. The trustees of the pension fund are responsible for the investment policy with regard to the assets of the fund. The scheme was closed for further accrual from 5 April 2017 following consultations with employees and their representatives and the pension scheme Trustees. The valuation used for IAS19R disclosures has been based on the most recent actuarial valuation and updated by the actuaries during 2022 to take account of the requirements of IAS19R in order to assess the liabilities of the scheme at 31 December 2022. Scheme assets are stated at their market values at the reporting dates. Main assumptions: Key financial assumptions 2022 2021 Discount rate 5.0% 1.8% Salary increases 4.1% 4.3% Pension increases 3.1% 3.3% Price inflation 3.1% 3.3% Mortality assumptions 2022 2021 Life expectancy at age 60 for a male currently aged 60 28.3 28.2 Life expectancy at age 60 for a female currently aged 60 30.0 29.9 Life expectancy at age 60 for a male currently aged 40 30.5 30.4 Life expectancy at age 60 for a female currently aged 40 31.7 31.6 The assets and liabilities of the scheme at 31 December are: Market value 2022 €m Market value 2021 €m Equities 7.7 21.2 Bonds 40.0 49.8 Total market value of scheme assets 47.7 71.0 Present value of scheme liabilities (37.4) (63.4) Pension asset 10.3 7.6 Movement in present value of benefit obligation 2022 €m 2021 €m As at 1 January (63.4) (66.9) Interest cost (1.1) (1.1) Past service gain - 0.3 Actuarial gains 23.0 6.8 Benefits paid to members 1.7 1.7 Exchange difference 2.4 (4.2) As at 31 December (37.4) (63.4) The duration of the defined benefit obligation at 31 December 2022 was 14.4 years (31 December 2021: 18.8 years). Financial statements Notes to the Company Financial Statements continued For the year ended 31 December 2022 176 Urenco Annual report and accounts 2022 Financial statements 03