The ATP Group Interim report for H1 2012

Transcription

1 The ATP Group recorded a profit of DKK 3.9bn for H1 2012, driven by ATP's investment and hedging activities. With the profit for the period, ATP's reserves its bonus potential increased to a total of DKK 78.1bn at the end of H1. Hedging activities posted a profit of DKK 1.3bn, entailing that the return on the hedging portfolio more than offset the increase in the value of pension liabilities resulting from the fall in interest rates during the period. In other words, hedging activities meet the objective of hedging pension provisions. ATP's investment-activity results, totalling DKK 4.4bn, were equivalent to a return of 5.9 per cent on the bonus potential. Four out of five risk classes generated positive returns. The Credit and Equity risk classes, in particular, boosted results for the period. At end-h1, 860,000 pensioners were receiving lifelong ATP pensions. In H1, ATP received contributions totalling DKK 4.3bn and paid out pension benefits of DKK 5.9bn. The European debt crisis continues unabated, and H1 was generally marked by great financial market uncertainty. Low interest rates also present a challenge for a pension provider such as ATP, and against this backdrop, we are satisfied with the results, says Lars Rohde, ATP CEO.

2 Contents 3 Financial highlights of the ATP Group 19 Pension activities 21 Administration activities 4 Report for H Report for H Outlook for Financial statements 22 Financial statements and notes for the ATP Group 33 Financial statements for ATP, including ratios 7 Business areas 35 Financial statements for SUPP, including ratios 7 Hedging and investment activities 8 Hedging activities 10 Investment activities 2

3 Financial highlights of the ATP Group H1 H1 Full year DKK million Investment activities Investment-activity results before tax on pension-savings returns 5,171 9,882 16,255 Tax on pension-savings returns (736) (1,476) (2,183) Investment-activity results after tax on pension-savings returns 4,435 8,406 14,072 Hedging activities Return on hedging portfolio, etc. 23,620 (16,692) 107,889 Change in guaranteed benefits (18,685) 12,911 (103,203) Hedging-activity results before tax on pension-savings returns 4,935 (3,781) 4,686 Tax on pension-savings returns (3,614) 2,504 (16,183) Hedging-activity results after tax on pension-savings returns 1,321 (1,277) (11,497) Pension-activity results (1,792) 975 1,439 Transferred to unit-linked contracts (74) 10 (17) Administration-activity results Tax (1) (5) (4) Results before bonus 3,928 8,125 4,003 Bonus addition for the period Net results for the period 3,928 8,125 4,003 Investment assets 726, , ,193 Other assets 68, ,218 80,456 Total assets 794, , ,649 Guaranteed benefits 523, , ,925 Bonus potential 78,116 78,037 74,133 Provisions for unit-linked contracts 2,729 2,330 2,513 Other liabilities 189, , ,078 Total liabilities 794, , ,649 3

4 Report for H Results and ratios for H DKK million ATP H Group H Investment-activity results 4,372 4,435 Hedging-activity results 1,321 1,321 Investment and hedging-activity results 5,693 5,756 Pension-activity results, etc. (1,766) (1,828) Net results for the period 3,927 3,928 Specification of investment and hedging-activity results: Return on hedging portfolio 23,620 23,620 Return on investment portfolio 5,233 5,469 Return on investment and hedging portfolios 28,853 29,089 Increase in pension liabilities (18,685) (18,685) Tax on pension-savings returns on investment and hedging portfolios (4,349) (4,350) Investment expenses (126) (298) Investment and hedging-activity results 5,693 5,756 Ratios: Investment-activity results relative to the bonus potential (per cent) Pension-activity expenses per member (DKK) 30 - Investment-activity expenses per member (DKK) 27 - Bonus rate (per cent) Danish FSA ratios: Return before tax on pension-savings returns (per cent) Return after tax on pension-savings returns (per cent) The ATP Group recorded a profit of DKK 3.9bn for H ATP's reserves its bonus potential rose to DKK 78.1bn. Results were boosted, in particular, by a DKK 5.7bn profit on ATP's investment and hedging activities. The ATP Supervisory Board has established a return requirement of DKK 17.7bn for ATP's investment and hedging activities for the full year 2012, based on expected inflation and a premium of 1 per cent. Although results, at DKK 5.7bn, do not fully meet the target for the period, they are still considered to be satisfactory in view of the market conditions. ATP's investment-activity results were a profit of DKK 4.4bn, equivalent to a rate of return of 5.9 per cent on the bonus 4

5 potential at the beginning of Investment-activity results include a positive return of DKK 5.2bn on the investment portfolio. Four out of five risk classes posted positive returns, the Credit risk class being the top performer with a return of DKK 2.1bn, equivalent to 4.7 per cent. In addition, listed domestic equities and private equities, in particular, boosted results for the period. Hedging activities generated a profit of DKK 1.3bn. For H1, the return on hedging activities more than offset the DKK 18.7bn increase in pension liabilities resulting primarily from the fall in interest rates during the period. Over time, hedging-activity results are expected to be zero, albeit with minor fluctuations over the years. Pension-activity results were a loss of DKK 1.8bn, attributable mainly to the acceleration in the increase of the retirement age resulting from the Retirement Reform. Pension commitments already made have been converted to reflect the acceleration, the impact on results being DKK 1.7bn. In June 2012, the Danish Financial Supervisory Authority (FSA) implemented a change to the general yield curve for the valuation of pension liabilities of insurance companies and non-occupational pension funds. Had ATP used the Danish FSA's yield curve, ATP's bonus potential would have been DKK 55.2bn higher. In ATP's assessment, the yield curve used by ATP still better reflects ATP's long-term liabilities than the general yield curve. Moreover, ATP's yield curve risk is hedgeable. At end-h1, 860,000 pensioners were receiving ATP Lifelong Pension. Contribution income amounted to DKK 4.3bn, while pension payouts totalled DKK 5.9bn. In H1 2012, efforts towards implementing a business solution for Udbetaling Danmark were stepped up. The focus has been on construction of buildings, including retrofitting premises, recruitment and training of staff as well as civic communication. Preparation of documentation for procedures and processes has been launched, along with testing of system deliveries and conversion. Also in 2012, the implementation will be rolled out when Udbetaling Danmark assumes responsibility for the disbursement of family benefits on 1 October 2012 and maternity/paternity benefits on 1 December In 2011, ATP invested in a new business activity, which is to provide investment services and pension expertise to a new pension trust in the UK. This is in response to the gradual introduction of a requirement for UK employers to register employees in a company pension scheme on appointment (auto-enrolment), starting in The objective is to achieve economies of scale in the Group's asset management by offering investment services through a whollyowned investment company. At end-h1 2012, agreements have been entered into on the management of employee pension schemes on behalf of ISS UK with a total of 43,000 employees. 5

6 Outlook for 2012 In general, H1 was impacted by major uncertainty in the financial markets. Substantial fiscal tightening is on the cards for Europe to restore confidence in public finances. This is, to some extent, offset by the continued highly expansive monetary policy, but the overall picture is still one of consolidation and debt reduction. Looking forward, the outlook for global growth is moderate and uncertainty concerning economic developments in southern Europe is a major contributor to the low growth forecast. stage is set for a challenging investment environment for the remainder of The Supervisory and Executive Boards find it important to maintain significant risk diversification of the portfolio to deliver positive performance also for the remainder of the year. Administration expenses for the ATP scheme were DKK 30 for each member in H1 2012, while total investment expenses for the ATP scheme were DKK 126 for each member. Both administration and investment expenses are still expected to be maintained at the 2011 level in Against the backdrop of major uncertainty in the financial markets and prospects of continued subdued growth, the 6

7 Hedging and investment activities ATP's portfolio is divided into a hedging portfolio and an investment portfolio to match ATP's two-pronged objective of preserving the long-term purchasing power of pensions without exposing members to unnecessary risks: The hedging portfolio aims to ensure optimal hedging of the interest-rate risk of ATP's pension liabilities The investment portfolio is to generate an absolute return that is sufficient to preserve the long-term purchasing power of pensions. The hedging-portfolio return is included in hedging-activity results, while investment activities comprise the return of other investments. Hedging activities relate only to ATP, while investment activities also comprise the SUPP scheme. Hedging and investment-activity results must be sufficient over time to ensure that pensions are revalued in line with the Retail Price Index (RPI). The performance target for hedging and investment activities for 2012 has been set at DKK 17.7bn, determined on the basis of expected inflation and a risk premium of 1 per cent. The initial expectation of DKK 14.1bn for 2012 has been adjusted upward, reflecting that the Danish Ministry of Business and Growth has raised inflation expectations for 2012 from 1.8 per cent to 2.5 per cent. As returns fluctuate from year to year also as a result of short-term events a target has also been defined for the return over a five-year period. Similarly, the performance target for the five-year period of has been set at DKK 72.1bn, based on the updated inflation forecasts. 7

8 Hedging activities Hedging-activity results H1 H1 Full year DKK million Return on hedging portfolio, etc. 23,620 (16,692) 107,889 Change in guaranteed benefits (18,685) 12,911 (103,203) Tax on pension-savings returns (3,614) 2,504 (16,183) Hedging-activity results 1,321 (1,277) (11,497) Interest-rate developments in H Yield-spread developments in H Per cent Percentage points /12 30/06 30-year domestic swap rate 30-year European swap rate 30-year German government bond yield 30-year domestic government bond yield /12 30/06 30-year domestic swap rate less 30-year European swap rate 30-year domestic government bond yield less 30-year German government bond yield 30-year German government bond yield less 30-year European swap rate Hedging of the interest-rate risk of ATP's pension liabilities benefits guaranteed to members is performed through a separate hedging portfolio. Hedging is planned with a view to ensuring that the market value of the hedging portfolio fluctuates in line with pension liabilities when interest rates go up or down. Hedging is primarily performed by purchasing very long-dated fixed-rate government bonds or by entering into interest-rate swaps. Hedging-activity results fluctuate from one year to the next; in some years, hedging activities will generate a profit, in others a loss as hedging is not completely precise. Over time, hedging activities are not expected to generate an actual profit. But given that hedging activities provide effective protection against loss of bonus potential, ATP's investment activities will have considerably more scope to take risks that may lead to a higher return. Hedging-activity results Hedging activities generated a profit of DKK 1.3bn. Hedging thus more than offset the increase in the value of pension liabilities resulting from the fall in interest rates in H1. Hedging generated a return of DKK 23.6bn before tax. As a result of the return, tax on pension-savings returns amounted to DKK 3.6bn, and the hedging portfolio thus produced a return after tax of DKK 20.0bn. With the fall in interest rates, the value of guaranteed benefits increased by DKK 13.5bn. At the same time, benefits that members are guaranteed at the beginning of the year move six months closer to payout at the end of H1, causing the value of guaranteed benefits to rise by DKK 5.2bn. Between them, these changes produced an increase in the value of guaranteed benefits of DKK 18.7bn. 8

9 In H1, the hedging portfolio comprised a smaller allocation of 30-year German government bonds and a larger allocation of 30-year European interest-rate swaps than the allocations of these bonds in the yield curve for valuation of pension liabilities. This made a positive contribution to results for H1, as yields on 30-year German government bonds declined less during this period than the 30-year European swap rate. Value of ATP's pension liabilities in relation to hedging activities In relation to hedging activities, the value of ATP's pension liabilities changes for two reasons: Firstly, the value increases when interest rates decline, as ATP has to set aside more funds to be able to meet future pension liabilities. In H1, pension liabilities increased by DKK 13.5bn due to the fall in interest rates. Secondly, pension benefits move six months closer to payout, causing the value of pension liabilities to rise, as DKK 1 six months from now is worth more than DKK 1 one year from now. This effect is reflected in the item 'Change in guaranteed benefits due to maturity reduction', representing a rise of DKK 5.2bn. Between them, these changes produced a DKK 18.7bn increase in the value of guaranteed benefits in H Yield curve for the calculation of pension liabilities interest-rate swaps denominated in Danish kroner interest-rate swaps denominated in euros domestic government bonds German government bonds 10 per cent 40 per cent 15 per cent 35 per cent The yield curve is flat after the 30-year mark. Hedging-activity ratios In case of a general 1-percentage-point interest-rate fall, ATP s pension liabilities will rise by DKK 103.1bn. At end-h1 2012, hedging using bonds accounted for 45.1 per cent of the interest-rate sensitivity of ATP's pension liabilities. At end-h1 2012, hedging in the euro market accounted for 69.8 per cent of the interest-rate sensitivity of ATP's pension liabilities. 9

10 Investment activities Investment-activity results for H (DKK million) ATP SUPP Other¹ Group Return on investment 5, ,469 Expenses (126) (4) (168) (298) Tax on pension-savings returns (735) (1) 0 (736) Investment-activity results 4, (7) 4,435 1) Comprised primarily of reclassifications related to financial statement consolidation. 2) The DKK 14m difference relative to 'Total investment portfolio after financing' in the table 'Return on the ATP investment portfolio' is due mainly to currency translation of foreign subsidiary financial statements into Danish kroner. These results are translated at an average exchange rate, while the balance sheet is translated at the year-end rate, leading to a difference relative to the Parent Company's financial statements. This difference is adjusted only in the Parent Company's return on investment activities not in the market return. The Group's investment activities comprise the asset management of the ATP and SUPP schemes. Asset management comprises overall investment management, risk monitoring and ongoing portfolio management. The central focus of the Group's investment activities is on the management of the ATP assets. Consolidated subsidiaries are in charge of ATP's real-estate, forestry, private-equity and credit-fund investments, etc. At DKK 4.4bn, the Group's overall investment-activity results are equivalent to ATP's investment-activity results, corres-ponding to a return of 5.9 per cent of the bonus potential at the beginning of Investment-activity results of the SUPP scheme were DKK 70m. ATP's direct investment expenses totalled DKK 123m, equivalent to DKK 27 for each member. Total investment expenses for ATP, comprising ATP's direct investment expenses and expenses related to external asset management and asset management through subsidiaries, amounted to DKK 598m in H1, or DKK 126 for each member. In general, H1 was impacted by major uncertainty in the financial markets. At the beginning of 2012, the European Central Bank's introduction of a series of measures to smooth the functioning of the money market and underpin the liquidity of the banks in the euro area had had a positive impact on the overall financial market environment, but during Q2 concerns over the situation in southern Europe were rekindled. As a result of this turbulence, yields on government bonds in safe-haven countries fell to extraordinarily low levels. Thus yields on short-dated government bonds fell below zero in both Denmark and Germany. At end-h1, yields on domestic government bonds across all remaining maturities were below those of their German counterparts. Global equity markets also responded to the renewed turbulence. Overall, European equity markets ended H1 largely flat, while the US and particularly the domestic equity market ended H1 with fair gains relative to the beginning of the year. Global economic growth was improving in Q1, while Q2 was marked by weaker economic data. 10

11 Return on the ATP investment portfolio 1 Portfolio end of H Return H DKK billion per cent DKK million per cent 2 Beta portfolio , Interest Rates , Credit , Equities , Inflation Commodities (736.7) (9.6) Alpha portfolio Total investment portfolio , Transferred to hedging activities 3 (252.8) (297.5) Total investment portfolio after financing , ) Each figure is reconciled separately and, accordingly, rounding differences may occur. 2) The return is calculated on a money-weighted return basis, using daily values. 3) The hedging portfolio is comprised of financial instruments and bonds designed to hedge the interest-rate risk on ATP's pension liabilities. Funds that are not tied up in the hedging portfolio as a result of the use of financial instruments are available for investment in the investment portfolio. A market rate is paid to hedging activities on these funds. This amount is referred to as 'Transferred to hedging activities'. In H1, the investment portfolio generated an overall market return of DKK 5.5bn before tax, equivalent to a rate of return of 1.7 per cent. DKK 0.3bn was transferred to hedging activities as market-based interest rate payment for making liquidity available to the investment portfolio. Allowing for financing costs on the funds made available by hedging activities, the return on the investment portfolio thus totalled DKK 5.2bn. The investment portfolio is comprised of a beta portfolio and an alpha portfolio. The beta portfolio, totalling DKK 311.3bn, is broadly invested in five risk classes with widely different risk profiles. The DKK 7.9bn alpha portfolio is invested through strategies that are expected to deliver positive returns irrespective of ups and downs in the financial markets. 11

12 Breakdown of the beta portfolio by risk class, end of H Beta portfolio Market value DKK 311.3bn Risk DKK 4.6bn Diversification DKK 2.2bn Interest Rates Allocation DKK 164.3bn Exposure DKK 2.2bn Risk DKK 0.7bn Credit Allocation DKK 47.2bn Exposure DKK 54.6bn Risk DKK 0.5bn Equities Allocation DKK 44.5bn Exposure DKK 36.8bn Risk DKK 3.4bn Inflation Allocation DKK 47.9bn Exposure DKK 87.1bn Risk DKK 1.5bn Commodities Allocation DKK 7.0bn Exposure DKK 7.0bn Risk DKK 0.6bn Bonds subject to interest-rate sensitivity Bonds subject to credit risk Broad equity exposure Stable and inflation-proof payments Exposure to commodities Examples: Government bonds Mortgage bonds Examples: Low-rated government and corporate bonds (Emerging-market and high-yield bonds) Examples: Listed equities Private equities Venture capital Examples: Index-linked bonds Real estate Infrastructure assets Examples: Commodity-indexed bonds Note: The sum of the risk of the five risk classes is DKK 6.7bn, thus exceeding the investment-portfolio risk by DKK 2.2bn. The figure DKK 2.2bn represents the risk-diversification effect achieved from diversifying investments among the five risk classes. Allocation represents the market value of investments. Exposure represents the sensitivity of the risk class to price changes. In terms of interest rates, the interest-rate sensitivity to a 1-percentage-point interest-rate fall is shown. Risk represents the average loss in a number of worst-case scenarios based on calculations of 10,000 market scenarios. In terms of equities, the DKK 3.4bn risk implies that, in the 5-per-cent worst-case scenarios, ATP s equity portfolio is expected to lose an average of DKK 3.4bn over a 5-day period. Four out of five risk classes delivered positive returns The beta portfolio is divided into five risk classes: Interest Rates, Credit, Equities, Inflation and Commodities. The table shows the beta portfolio allocation among the five risk classes at end-h The table also provides examples of assets that may be contained in the risk classes. In H1, the overall return on the beta portfolio was DKK 5.0bn, equivalent to a rate of return of 1.6 per cent. Four out of five risk classes posted positive returns. Credit, achieving a return of DKK 2.1bn, or 4.7 per cent, accounted for the highest return in DKK terms. However, Equities, Interest Rates and Inflation also made positive contributions of DKK 1.8bn, DKK 1.7bn and DKK 0.1bn, respectively. 12

13 Beta portfolio return on Interest Rates Yield development for 10-year government bonds in H Return H Asset type DKK million per cent Global bonds 1, Domestic mortgage bonds Total 1, Per cent /12 30/06 Yield on 10-year domestic government bond Yield on 10-year German government bond Interest Rates The Interest Rate risk class, consisting of global bonds and domestic mortgage bonds, recorded a return of DKK 1.7bn, equivalent to a rate of return of 1.1 per cent. The portfolio of global bonds, comprised primarily of domestic and foreign government bonds, produced a return of DKK 1.6bn, or 1.0 per cent. In H1, like in 2011, this portfolio has been invested mainly in 10-year domestic and German government bonds. The positive return was driven by falling yields on 10-year domestic and German government bonds during Q2. 13

14 Development in total return on Credit in H DKK million /12 30/06 Credit The Credit risk class, consisting of high-yield bonds and loans to credit institutions and funds, generated a return of DKK 2.1bn, or 4.7 per cent. High-yield bonds, i.e. bonds issued by companies with low credit ratings or by developing countries, recorded a return of DKK 1.1bn, equivalent to a rate of return of 7.0 per cent. The positive return was achieved thanks to generally high returns and no major bankruptcies in H1. Loans to credit institutions and funds investing, among other things, in bank loans and real-estate related loans produced a return of DKK 1.0bn, or 3.4 per cent. These loans are made indirectly through ATP Alternative Investments K/S or directly through ATP. 14

15 Beta portfolio return on Equities Equity-price developments in H Return H Asset type DKK million per cent Listed domestic equities 1, Private equities 1, Hedging strategies 1 (1,476.9) - Total 1, ) The return is not specified in per cent as the portfolio consisted exclusively of financial instruments that did not require an initial investment as in the case of equities. Index /12 30/06 Denmark USA Europe Equities The Equity risk class generated a return of DKK 1.8bn, or 4.0 per cent. The portfolios of listed domestic equities and private equities both contributed positively to the return on this risk class, while hedging strategies made a negative contribution. The portfolio of listed domestic equities posted a return of DKK 1.7bn, equivalent to 12.3 per cent. Holdings in Novo Nordisk A/S and GN Store Nord A/S, in particular, boosted the return. The portfolio of private equities, consisting primarily of investments in ATP Private Equity Partners, achieved a return of DKK 1.6bn, or 5.6 per cent. Equity-related financial instruments help to hedge the equity portfolio against steep equity-price falls. In H1, these hedging strategies produced a negative return of DKK 1.5bn. The negative return is attributable, in part, to a loss of value as the financial instruments have moved closer to expiry and, in part, to a decreasing market value of hedging strategies due to falling volatility in European equity markets relative to the beginning of the year. 15

16 Beta portfolio return on Inflation Asset type DKK million Return H per cent Index-linked bonds Real estate Infrastructure Beta reference Financial contracts 1 (341.2) - Hedging strategies 1 (589.3) - Total ) The return is not specified in per cent as the portfolio consisted exclusively of financial instruments that did not require an initial investment as in the case of equities. Inflation The Inflation risk class, consisting of index-linked bonds, real estate, foreign infrastructure investments, an externally managed beta reference portfolio with high risk diversification, financial contracts and hedging strategies, posted a return of DKK 0.1bn, or 0.2 per cent. Financial contracts comprise inflation swaps, while hedging strategies, providing protection against rising inflation, comprise inflation caps and swaptions. Real estate was the main positive contributor to the return. Real-estate investments generated a return of DKK 0.5bn, equivalent to a rate of return of 2.2 per cent. With a negative return of DKK 0.6bn, the portfolio of hedging strategies delivered the largest negative contribution to returns. The negative return was driven mainly by the falling market value of hedging strategies due e.g. to market expectations of lower future inflation. 16

17 Oil-price developments in H Dollars per barrel (WTI) /12 30/06 Commodities The Commodity risk class, consisting exclusively of oil-related risk, produced a negative return of DKK 0.7bn, or a negative rate of return of 9.6 per cent. The portfolio of oil-indexed bonds is hedged against steep oil-price falls using oil options. These hedging strategies produced a negative return of DKK 56m. The portfolio of oil-indexed bonds recorded a negative return of DKK 0.7bn, or a negative rate of return of 9.0 per cent. The negative return was driven by falling oil prices during H1. Alpha portfolio In H1, the alpha portfolio generated an overall return of DKK 0.5bn, or 7.3 per cent. 17

18 SUPP portfolio and return Portfolio end of H Return H DKK million per cent DKK million per cent 1 SUPP 2, SUPP Lav Risiko ('SUPP Low Risk') 1, SUPP Høj Risiko ('SUPP High Risk') 1, Cash and cash equivalents ) ATP uses daily, time-weighted rates of return. 2) The portfolio of cash and cash equivalents is comprised of social-security contributions and funds that are yet to be allocated to SUPP Lav Risiko and SUPP Høj Risiko. The SUPP investment portfolio ATP manages the Supplementary Labour Market Pension Scheme for Disability Pensioners (SUPP). In H1 2012, the SUPP scheme's total market return on investment was DKK 75m before tax, equivalent to a rate of return of 3.2 per cent. The SUPP scheme's investments are placed in two subportfolios: SUPP Lav Risiko ('SUPP Low Risk') and SUPP Høj Risiko ('SUPP High Risk'), used to achieve the correct portfolio allocation for each member. Based on these two sub-portfolios, the SUPP funds are invested individually, depending on the age of the individual SUPP member. For SUPP members up to age 45, investments are placed exclusively in SUPP Høj Risiko. Subsequently, the risk is scaled down each year by reallocating some of the member's assets to SUPP Lav Risiko, entailing that all of his or her SUPP assets are placed in SUPP Lav Risiko by the time he or she reaches age 65. In H1 2012, the SUPP funds were placed only in bonds and equities. Given that the portfolio of equities contained a significant allocation of domestic equities, equities outperformed bonds. Thus the highest returns were achieved for the youngest SUPP members, having the highest portfolio allocation in SUPP Høj Risiko and thus a higher equity allocation. Moreover, the portfolio of bonds yielded a higher return in SUPP Høj Risiko than in SUPP Lav Risiko. The reasons are that the portfolio of bonds in SUPP Høj Risiko contained a higher allocation of long-dated bonds and that long-dated bonds outperformed short-dated bonds. 18

19 Pension activities Pension-activity results for the period H1 H1 Full year DKK million Contributions 4,277 4,097 8,602 Fee income Pension benefits (5,906) (5,488) (11,080) Change in guaranteed benefits due to contributions and pension benefits 524 2,760 4,479 Change in claims-outstanding provisions 0 0 (10) Expenses (147) (161) (336) Financial items after tax on pension-savings returns Results before change in life expectancy (1,235) 1,223 1,687 Change in guaranteed benefits due to change in life-expectancy (557) (248) (248) Pension-activity results (1,792) 975 1,439 Pension activities comprise the management of the ATP pension scheme and the SUPP savings scheme. Pension activities generated a loss of just under DKK 1.8bn, attributable mainly to the acceleration in the increase of the retirement age resulting from the Retirement Reform adopted in Parliament in Pension commitments already made have been converted to reflect the acceleration, the impact on results being DKK 1.7bn. This is reflected in a change in guaranteed benefits resulting from contributions and pension benefits of DKK 0.5bn. In H1 2012, pension payouts were up by just over DKK 0.4bn on the same period last year. The increase was driven primarily by a rise in the number of pensioners receiving lifelong ATP pensions. At the end of H1 2012, close to 860,000 pensioners were receiving lifelong ATP pensions an increase of some 47,000 pensioners compared with the same period last year. In H1 2012, contributions received were just under DKK 0.2bn higher than in the same period last year. The increase is attributable mainly to higher contribution rates for a number of public-sector collective bargaining agreements starting in early ATP contributions are divided into guarantee contributions and bonus contributions. The guarantee contribution is earmarked for the accrual of new pension rights for the year and is instantly hedged by hedging activities, while the bonus contribution accrues to the bonus potential with a view to future increases in pensions by way of bonus allocation. The bonus contribution that are allocated directly to the bonus potential by pension activities each year accounts for 20 per cent of total contributions. ATP performs the annual update of Danish life-expectancy in connection with the preparation of the interim report for H1. Due to the update, ATP has made further provisions of DKK 0.6bn, equivalent to just over 0.1 per cent of guaranteed benefits. The previous year's life-expectancy update resulted in additional provisions of DKK 0.2bn. In connection with the 2010 annual report, ATP started using the SAINT life-expectancy model, which factors in expected future increases in life-expectancy. However, the annual updates may still result in adjustments of the value of pension provisions. The 2012 life-expectancy update showed a strong increase of 5 months in life-expectancy for women, while the increase 19

20 in male life-expectancy was just over 2.5 months. Had the SAINT model not been used, this would have resulted in additional provisions of approx. DKK 5.8bn. However, as most of the increase in life-expectancy had been picked up by the model, the update resulted in additional provisions of only DKK 0.6bn. In H1 2012, pension-activity expenses amounted to DKK 147m, equivalent to DKK 30 for each member. For the full year 2012, expenses of DKK 69 are expected for each member. At end-h1 2012, the Group had received fee income of DKK 11m. Fees to cover expenses are collected directly from nonretired SUPP members. 20

21 Administration activities Administration-activity results for the period DKK million H H Full year 2011 Income Expenses (286) (292) (637) Administration-activity results In relation to its pension activities, ATP sells administration services in the fields of pensions and social security to other schemes, including Udbetaling Danmark, LG, AER, AES, FerieKonto and Barsel.dk. These services are provided on a cost-recovery basis. ATP also sells administration services, etc., to 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 to pension or investment activities under the items 'Other income' or 'Other expenses' are also included in administration activities. The Group's administration activities, generating a profit of DKK 39m, comprise the sale of administration services to external clients and other related parties, as well as expenses incurred in connection with the sale of administration services. Expenses totalling DKK 245m were re-invoiced in H Under Udbetaling Danmark, ATP will assume responsibility for the disbursement of a number of social-security benefits from local authorities. The act on administrative procedures and management of Udbetaling Danmark, supplementing the Danish establishment act of 2010, was adopted on 29 March 2012 and includes provisions on citizens' rights, appeal and supervisory provisions, financial reporting and auditing and municipal administration contributions. In H1 2012, efforts towards implementing a business solution for Udbetaling Danmark were stepped up. The focus has been on the construction of buildings, including retrofitting premises, recruitment and training of staff as well as civic communication. Preparation of documentation for procedures and processes has been launched, along with testing of system deliveries and conversion. Also in 2012, the implementation will be rolled out when Udbetaling Danmark assumes responsibility for the disbursement of family benefits on 1 October 2012 and maternity/paternity benefits on 1 December

22 Statement by the Supervisory and Executive Boards The Supervisory and Executive Boards have today discussed and adopted the interim report of ATP for the period 1 January to 30 June The interim report has not been subject to review or audit. The interim report for H has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the EU, and in accordance with additional Danish disclosure requirements as set out in 'Executive Order on Financial Reporting by the Danish Labour Market Supplementary Pension Scheme and the Supplementary Labour Market Pension Scheme for Disability Pensioners' (available in Danish only). The accounting policies applied in this interim report for H are consistent with those applied in the annual report for We consider the accounting policies applied to be appropriate and the overall presentation of this interim report for H to be adequate. In our opinion, the interim report for H provides a true and fair view of the Group s and ATP's financial position as at 30 June 2012 and of the results of the Group s and ATP s operations, as well as Group s cash flows for the period 1 January to 30 June In our opinion, the management s review also provides a true and fair description of the development in the Group's and ATP's operations and financial position as well as a description of the most significant risks and uncertainties facing the Group and ATP. Copenhagen, 23 August 2012 Executive Board: Lars Rohde /Lars Damgaard Sørensen Chief Executive Officer Chief Financial Officer Supervisory Board: Jørgen Søndergaard Chairman of the Supervisory Board Torben Dalby Larsen Kim Graugaard Harald Børsting Lizette Risgaard Member of the Super- Member of the Super- Member of the Super- Member of the Supervisory Board visory Board visory Board visory Board Jørn Neergaard Larsen Martin Damm Ingerlise Buck Kim Simonsen Member of the Super- Member of the Super- Member of the Super- Member of the Supervisory Board visory Board visory Board visory Board Pejter Søndergaard Niels Gotfredsen Erik Jylling Bente Sorgenfrey Member of the Super- Member of the Super- Member of the Super- Member of the Supervisory Board visory Board visory Board visory Board 22

23 The ATP Group Comprehensive income statement DKK million H H Q Q Q Q Q Investment activities Income from associates Income from investment properties Consulting fee Interest income and dividends, etc. 13,736 14,066 6,288 7,448 6,429 7,059 7,486 Fee income Market-value adjustments (1,703) 2,771 (1,796) 93 (208) 1,776 (219) Interest expenses (7,125) (7,338) (3,454) (3,671) (3,396) (5,620) (3,722) Investment-activity expenses (298) (262) (149) (149) (145) (120) (127) Investment-activity results before tax on pension-savings returns 5,171 9,882 1,147 4,024 3,021 3,352 3,863 Tax on pension-savings returns in respect of investment activities (736) (1,476) (97) (639) (448) (259) (546) Investment-activity results after tax on pension-savings returns 4,435 8,406 1,050 3,385 2,573 3,093 3,317 Hedging activities Interest income and dividends, etc. 6,671 6,327 3,147 3,524 2,902 5,164 3,180 Market-value adjustments 16,985 (22,545) 26,057 (9,072) 24,605 92,076 4,188 Interest expenses (36) (474) (16) (20) (45) (121) (239) Tax on pension-savings returns in respect of hedging activities (3,614) 2,504 (4,466) 852 (4,119) (14,568) (1,069) Change in guaranteed benefits due to change in discount rate (13,528) 19,177 (20,199) 6,671 (24,127) (86,236) (2,449) Change in guaranteed benefits due to maturity reduction (5,157) (6,266) (2,501) (2,656) (2,731) (3,020) (3,176) Hedging-activity results 1,321 (1,277) 2,022 (701) (3,515) (6,705) 435 Pension activities Contributions 4,277 4,097 2,100 2,177 2,268 2,237 2,098 Fees Benefit payouts (5,906) (5,488) (2,930) (2,976) (2,837) (2,755) (2,710) Change in claims-outstanding provisions (10) 0 0 Change in guaranteed benefits due to contributions and pension benefits 524 2,760 (645) 1, ,279 1,509 Interest income related to pension activities Pension-activity expenses (147) (161) (72) (75) (102) (73) (83) Tax on pension-savings returns in respect of pension activities (1) (1) (1) 0 0 (1) (1) Results before change in life expectancy (1,235) 1,223 (1,538) 303 (232) Change in guaranteed benefits due to life-expectancy update (557) (248) (557) (248) Pension-activity results (1,792) 975 (2,095) 303 (232) Transferred to unit-linked contracts (74) 10 (20) (54) (73) 46 (3) Administration activities Other income Other expenses (286) (292) (148) (138) (213) (132) (144) Administration-activity results (20) 14 5 Results before tax 3,929 8, ,962 (1,267) (2,856) 4,327 Tax (1) (5) 1 (2) 4 (3) (2) Results before bonus 3,928 8, ,960 (1,263) (2,859) 4,325 Bonus addition for the period Net results for the period 3,928 8, ,960 (1,263) (2,859) 4,325 Other comprehensive income 55 (93) 89 (34) (53) Total comprehensive income for the period 3,983 8,032 1,057 2,926 (1,079) (2,825) 4,272 Minority interests' share of net results for the period The ATP Group's share of net results for the period 3,983 8,032 1,057 2,926 (1,079) (2,825) 4,272 Allocated comprehensive income 3,983 8,032 1,057 2,926 (1,079) (2,825) 4,272 23

24 The ATP Group Balance sheet DKK million H H Q Q Q Q Q ASSETS Cash and demand deposits 1,779 3,198 1,779 1,611 2,688 1,687 3,198 Bonds 539, , , , , , ,182 Equity investments 64,062 67,659 64,062 63,792 64,370 62,921 67,659 Investment assets related to unit-linked contracts 2,363 2,022 2,363 2,338 2,178 2,032 2,022 Financial derivatives 101,152 28, ,152 82,815 82,113 85,659 28,000 Other loans Loans to portfolio companies , Investments in associates 7,137 6,928 7,137 7,078 7,217 7,049 6,928 Intangible assets Investment properties 11,378 10,980 11,378 11,230 11,125 11,121 10,980 Owner-occupied properties Operating equipment Corporation tax Deferred tax Deferred tax on pension-savings returns 0 1, ,012 Interest receivable and accrued rent 10,167 9,277 10,167 6,828 5,337 9,365 9,277 Contributions receivable 2,309 1,909 2,309 2,351 2,291 2,052 1,909 Receivables from credit institutions 51,109 93,787 51,109 44,499 57,630 92,167 93,787 Other receivables , ,029 10,456 1,297 14,143 Other prepayments Total assets 794, , , , , , ,991 LIABILITIES Financial derivatives 48,122 33,974 48,122 38,212 41,092 38,780 33,974 Tax payable on pension-savings returns 4, , ,430 13,820 9 Payables to credit institutions 127, , , , , , ,800 Other payables 9,746 20,242 9,746 2,902 6,751 4,660 20,242 Total payables 189, , , , , , ,025 Guaranteed benefits 523, , , , , , ,530 Claims-outstanding provisions Bonus potential 78,116 78,037 78,116 77,059 74,133 75,211 78,037 Provisions for unit-linked contracts 2,729 2,330 2,729 2,647 2,513 2,362 2,330 Total pension provisions 604, , , , , , ,962 Total minority interests Total liabilities 794, , , , , , ,991 24

25 The ATP Group Cash flow statement DKK million H H Q Q Q Q Q Cash flows from operating activities Cash flows from pension activities (1,215) (1,311) (641) (574) (497) (742) (654) Cash flows from investment and hedging activities 12,563 5,916 29,443 (16,880) 17,901 10,255 7,863 Cash flows from administration activities (55) Corporation tax paid and tax paid on pension-savings returns (18,366) (5) (18,365) (1) 7 (3) (2) Total (6,957) 4,616 10,382 (17,339) 17,413 9,524 7,212 Net cash flow from investment activities Purchase and sale of investment assets 9,519 41,415 (4,041) 13,560 (13,745) 44,689 27,368 Intangible assets, property, plant and equipment and owner-occupied properties (223) (42) (103) (120) (124) (26) (23) Total 9,296 41,373 (4,144) 13,440 (13,869) 44,663 27,345 Cash flow from financing activities Loans from credit institutions (3,287) (47,675) (6,118) 2,831 (1,901) (55,837) (35,872) Total (3,287) (47,675) (6,118) 2,831 (1,901) (55,837) (35,872) Change in cash and cash equivalents (948) (1,686) 120 (1,068) 1,643 (1,650) (1,315) Exchange-rate adjustments (9) (642) Cash and cash equivalents, beginning of period 2,688 4,398 1,611 2,688 1,687 3,198 3,729 Cash and cash equivalents, end of period 1,779 3,198 1,779 1,611 2,688 1,687 3,198 25

26 The ATP Group Note 1 Accounting policies The interim report of the ATP Group for the period 1 January to 30 June 2012 has been prepared in accordance with IAS 34 'Interim Financial Reporting' and in accordance with additional Danish disclosure requirements as set out in 'Executive Order on Financial Reporting by the Danish Labour Market Supplementary Pension Scheme and the Supplementary Labour Market Pension Scheme for Disability Pensioners' (available in Danish only). The accounting policies are consistent with those applied in the annual report for Significant risks faced by the Group and significant accounting estimates made by the Supervisory and Executive Boards which may affect the Group are described in detail in the annual report for The interim report has not been subject to review or audit. Note 2 Contingent liabilities DKK million H H Q Q Q Q Q Collateral in respect of financial derivatives and repo transactions 131, , , , , , ,046 Rental/lease obligations Potential deferred tax related to real estate Investment commitments, equity investments and commitments made by ATP Private Equity Partners 14,289 11,366 14,289 13,669 13,520 11,883 11,366 Investment commitments, real-estate funds 1,663 2,994 1,663 1,758 2,131 2,842 2,994 Investment commitments, infrastructure funds 2,935 3,949 2,935 2,900 2,986 3,681 3,949 Investment commitments, credit funds 4,253 4,826 4,253 5,086 4,884 4,835 4,826 Investment commitments, biotech companies 1, ,016 1, Investment commitments, private equities , Loan commitments, credit institutions 10,381 10,000 10,381 10,000 10,000 9,000 10,000 Loan commitments, credit funds

27 The ATP Group Note 3 Pension provisions DKK million H H Q Q Q Q Q Guaranteed benefits Market value, beginning of period 504, , , , , , ,166 Change in provisions for the period: Contributions 4,277 4,097 2,100 2,177 2,268 2,237 2,098 of which transferred to bonus potential (855) (819) (419) (436) (453) (448) (419) Pension benefits (5,906) (5,488) (2,930) (2,976) (2,837) (2,755) (2,710) Change due to life-expectancy update Change in discount rate 13,528 (19,177) 20,199 (6,671) 24,127 86,236 2,449 Change due to maturity reduction 5,157 6,266 2,501 2,656 2,731 3,020 3,176 Change due to adjusted tax rate for pension-savings returns Change due to conversion of pension commitments 1, , Other changes 281 (550) (164) (313) (478) Total change in provisions for the period 18,718 (15,423) 23,902 (5,184) 26,418 87,977 4,364 Market value, end of period 523, , , , , , ,530 Claims-outstanding provisions Balance, beginning of period Change in provisions for the period Balance, end of period Bonus potential Bonus potential: Balance, beginning of period 74,094 69,971 77,020 74,094 75,176 78,003 73,731 Changes during the period 3,985 8,032 1,059 2,926 (1,082) (2,827) 4,272 Balance, end of period 78,079 78,003 78,079 77,020 74,094 75,176 78,003 Adjustment pool: Balance, beginning of period (2) (5) (2) (2) (4) (4) (5) Changes during the period Balance, end of period (1) (4) (1) (2) (2) (4) (4) Revaluation reserve: Balance, beginning of period Changes during the period (3) (1) (3) (1) Balance, end of period Total bonus potential 78,116 78,037 78,116 77,059 74,133 75,211 78,037 Provisions for unit-linked contracts Balance, beginning of period 2,513 2,196 2,647 2,513 2,362 2,330 2,258 Changes during the period Balance, end of period 2,729 2,330 2,729 2,647 2,513 2,362 2,330 Total pension provisions 604, , , , , , ,962 27

28 The ATP Group Note 4 The impact of the Danish Financial Supervisory Authority's life-expectancy model (benchmark) on the calculation of ATP's provisions Life expectancies for 65-year-olds Age ATP 2011 Danish FSA 2011 Statistics Denmark 2010/ Women Men Average In December 2010, the Danish Financial Supervisory Authority (FSA) introduced a life-expectancy model to be applied in the monitoring the life-expectancy assumptions of life-insurance companies and pension funds. The Danish FSA's life-expectancy model consists of two elements: a benchmark for observed current life-expectancy and a benchmark for expected future increases in life-expectancy. According to analyses conducted by ATP, the Danish FSA's life-expectancy model does not have any implications for ATP's provisions for the following reasons. Observed current life expectancy The Danish FSA's benchmark for observed current life-expectancy is based on data provided by six Danish pension companies with a total client base of 1.7m, while the observed current life-expectancy assumptions used by ATP are based on data relating to ATP's 4.7m members. The current life expectancy of the clients of the six pension companies is higher than the current life-expectancy of ATP's members. This is in line with international analyses, showing that the life-expectancy of insured persons is higher than that of non-insured persons. The difference is shown in the chart above, illustrating life-expectancies for 65-yearolds based on the Danish FSA's life-expectancy model, the ATP pension population and data from Statistics Denmark. On 1 July 2011, like other pension companies, ATP reported a statistical analysis of the observed life-expectancy of its pension population to the Danish FSA. ATP's analysis shows that the difference between ATP's observed life-expectancy and the Danish FSA's benchmark for observed current life-expectancy is significant and justified. As a result, ATP has decided to use own data. 28