The ATP Group Annual Report 2012

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Management's Review Business Model Risk Pension Hedging and Investment Hedging Investment A d m i n i s t r a t i o n S o c i a l R e s p o n s i b i l i t y T h e AT P G r o u p Financial Statementsing equipment.Cash flows from financing activities include the use of repo transactionsfor the financial year.Cash and cash equivalents include cash and demand deposits, aswell as time deposits with an original term to maturity of less thanthree months.Note 3 Significant accounting estimatesIn the preparation of the annual report in accordance with generallyaccepted accounting principles, the Supervisory and ExecutiveBoards make estimates and assumptions that affect the reportedamounts of assets and liabilities. The Supervisory and ExecutiveBoards base their estimates on historical experience and on variousother factors that are believed to be reasonable and relevant underthe circumstances. The Supervisory and Executive Boards of the ATPGroup consider the following estimates and related assessments to besignificant in the preparation of the consolidated financial statements.Market rateThe market rate is determined as a zero-coupon yield structure, estimatedusing a recognised method. The assets included in the estimationbasis reflect the relevant currency denomination, maturity and liquidity.The percentage breakdown of the assets included in the estimationbasis is as follows:Interest-rate swaps denominated in Danish kroner (DKK) 10%Interest-rate swaps denominated in euros 40%Domestic government bonds 15%German government bonds 35%The market-yield curve is estimated on the basis of buying and sellingrates on the asset side of the breakdown above.The market-yield curve is estimated using the so-called 'boot-strapping'method. For interest-rate swaps denominated in Danish kroner,deposit rates for maturities of up to 6 months are used, as well as domesticswap rates with maturities of up to 30 years. For interest-rateswaps denominated in euros, the following rates are used: euro depositrates for maturities of up to 6 months, euro forward rate agreementsbetween 7 and 11 months, and euro swap rates with maturitiesof up to 30 years. For domestic government bonds, zero-coupon rateswith maturities from 3 months to and including 30 years are used. ForGerman government bonds, zero-coupon rates with maturities from 3months to and including 30 years are used.The zero-coupon rate is calculated using the continuous interest convention.Time (decimal years) is calculated using the 30/360 convention.The table below sets out significant yield-curve points for theyield curve used in 2012.Yield-curve points 2012 20111 years 0,14% 0,71%5 years 0,55% 1,25%10 years 1,48% 2,14%15 years 2,01% 2,62%20 years 2,21% 2,67%30 years 2,28% 2,43%Inflation 1,92% 2,54%Fair value of financial instrumentsThe fair value of financial instruments, including financial derivatives,for which listed market values are not available, is based on the bestinformation available under the circumstances. The accounting methodsinclude discounting of future cash flows and assessment of underlyingmarket conditions. Assumptions of interest rates, risk premiums,volatility, default and prepayments and other information are includedin the use of these methods.Pension provisionsIn the assessment of pension provisions, these provisions are calculatedon the basis of customary actuarial assumptions, the most significantassumptions relating to the discount factor based on the marketrate specified above and on life expectancies. The assumptions onwhich the assessment is based are assumed to reflect current marketconditions.Impairment test for development projectsDevelopment projects in progress must be tested for impairment atleast annually. All development projects in progress are progressingas planned and there are no circumstances to indicate that the assetsdeveloped will not be usable to the expected extent.On this basis, the Supervisory and Executive Boards have estimatedthe recoverable amount of development projects in progress in theform of expected future net cash flows, including costs of completion.The impairment test and the particularly sensitive conditions in thisrespect are described in detail in note 23 of the consolidated financialstatements.At the same time, the Supervisory and Executive Boards have assessedthat – for completed development projects that are amortisedover a useful life of 3 to 10 years – there are no indications of impairmentin addition to the amortisation already recorded. Accordingly,no impairment tests have been performed for completed developmentprojects.The ATP Group – Annual Report 201284
Management's Review Business Model Risk Pension Hedging and Investment Hedging Investment A d m i n i s t r a t i o n S o c i a l R e s p o n s i b i l i t y T h e AT P G r o u p Financial StatementsContingenciesDecisions regarding the accounting treatment of contingent assetsand liabilities are based on an assessment of the expected outcomeof the applicable contingency. If it is almost certain that a future economicbenefit will flow to the ATP Group, the asset and the related incomeare recognised. If, on the other hand, it is probable that a futureeconomic benefit will flow from the ATP Group when discharging the liability,the contingency is recognised as a liability. Where it is not possibleto estimate an amount with sufficient certainty, or it is not possibleto estimate the outcome of a given matter, information to this effectwill be provided. Decisions relating to such matters may generaterealised profits or losses in future accounting periods that exceed theamounts recognised in the financial statements.Hedging activitiesHedging activities relate only to ATP. The market value of guaranteedbenefits rises in case of interest-rate falls and declines in case of interest-raterises. The objective of ATP's hedging activities is, primarily,to hedge the interest-rate risk related to ATP's guaranteed benefits.In other words, the objective of the hedging activities is not, per se, togenerate an additional return.The hedging portfolio may consist of long-dated bonds or similar financialinstruments, e.g. interest-rate swaps. In principle, these instrumentsare subject to an interest-rate risk after tax that is equivalentto the interest-rate risk of guaranteed benefits.Pension activitiesPension activities comprise management of the ATP pension schemeand the SUPP savings scheme.Note 4 Segment informationThe Group's primary segments are the business areas upon which theplanning of the Group's internal financial management and reportingis based.Investment activitiesThe Group's investment activities comprise asset management of ATPand the Supplementary Labour Market Pension Scheme for DisabilityPensioners (SUPP). ATP's portfolio is divided into two separate subportfoliosto match the two main objectives to which the managementof ATP's investments is subject. These sub-portfolios are:• A hedging portfolio comprised primarily of interest-rate swapsand long-dated bonds, the aim of which is to ensure optimalhedging of ATP's pension liabilities. The hedging portfolio is notexpected to generate a return over time.• An investment portfolio, the aim of which is to generate an absolutereturn that is sufficient to ensure growth in the bonus potential,thus making it possible to preserve the purchasing power ofATP pensions and compensate for changes in life expectancy inthe long term.The financial statements of the SUPP scheme are presented as a unitlinkedscheme, entailing, among other things, that contribution paymentsand pension benefits are recognised directly in the item 'Provisionsfor unit-linked contracts' in the balance sheet.At ATP, changes in guaranteed benefits due to life-expectancy updatingare updated once a year at the end of H1.Administration activitiesIn relation to its pension activities, ATP sells administration services inthe fields of pensions and social-security services to other schemes,including Udbetaling Danmark, LG, AER, AES and FerieKonto. Theseservices are provided on a cost-recovery basis. ATP also sells administrationservices to a number of labour-market pension schemes.These services are provided as part of the Group’s administration activities.Other customary income and expenses that cannot be attributed topension or investment activities are also included under administrationactivities.Interest-rate swaps and bonds, designed to hedge ATP's pension liabilities,are part only of the hedging portfolio. The hedging-portfolioreturn is included in hedging-activity results, while investment activitiescomprise other investments.The ATP Group – Annual Report 201285
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Hovedtræk ATP Koncernens hovedtal
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