Basis of preparation and accounting policies
The consolidated financial statements have been prepared in accordance with the legal provisions of Part 9, Book 2 of the Dutch Civil Code and the firm statements of the Dutch Accounting Standards Board guidelines for Annual Reporting, issued by the Dutch Accounting Standards Board.
APG Groep NV (APG Group) provides management advice, asset management, pension administration, pension communication and employer services.
The financial statements are based on the legal entities of APG Group. APG Group was founded on February 29, 2008, is registered in the commercial register under number 14099616, and has its registered office at Oude Lindestraat 70, 6411 EJ Heerlen.
APG Groep NV is a company with a two-tier board structure and holds three wholly-owned subsidiaries: APG DWS en Fondsenbedrijf NV and APG Asset Management NV. APG Group also has a direct holding of 76 percent in Entis Holding BV. APG Group has a number of indirect equity interests. The complete structure is shown in the list of equity interests. This list is included as part of the notes to the company financial statements.
APG DWS en Fondsenbedrijf
APG DWS en Fondsenbedrijf is responsible for management advice, pension administration and pension communication for APG’s principals (pension funds, early retirement funds and social funds) in the public and private sectors. In 2021, APG Service Partners BV was merged with APG DWS en Fondsenbedrijf.
APG Asset Management
APG Asset Management is responsible for asset and fiduciary management and performs advisory activities for its client funds. APG is a long-term pension investor, which therefore needs to have a responsible investment policy. Execution of this policy forms an integral part of the asset management process.
APG Group has two shareholders: Stichting Pensioenfonds ABP (ABP) (92.16%) and Stichting Sociaal Fonds Bouwnijverheid (Stichting SFB) (7.84%).
These financial statements have been prepared on a going-concern basis. From a business economic perspective, the Corona risks for the APG organization are small because the service to customers can be fully continued. Moreover, the credit risk of the most important customers is relatively limited and there are often price agreements that are independent of developments in the financial markets.
The financial statements relate tot the year 2021, ending on December 31, the date of the balance sheet, and have been prepared on the basis of financial reporting principles generally accepted in the Netherlands and the statutory provisions concerning financial statements contained in Title 9, Book 2 of the Dutch Civil Code. Article 2:402 of the Dutch Civil Code was applied for the format of the company profit and loss account. Consequently, in the company-only profit and loss account only the share in profit/(loss) of investees and other results after deduction of taxes are shown as individual items. All amounts in the financial statements are shown in thousands of euros, unless stated otherwise.
Comparison with the previous year
There have been no changes in the accounting principles with respect to the previous year.
Making accounting estimates is unavoidable when preparing the financial statements. Management estimates mainly relate to goodwill, client contracts and provisions. If there is a change in an estimate, this is mentioned in the note to the section of the heading in the financial statements concerned.
Basis of consolidation
In the consolidated financial statements, equity investments in entities in which APG Group can exercise control over management decisions and financial policy are fully consolidated.
Inter-company transactions and mutual financial obligations are eliminated. The results and identifiable assets and liabilities of newly acquired entities are included in the consolidated financial statements from the date of acquisition. The date of acquisition is the point in time when dominant control can be exercised over the relevant entity. Entities included in the consolidation continue to be consolidated until the time they are sold. Deconsolidation takes place at the time when decisive control is transferred. In that case, the relevant company is presented as a financial non-current asset.
A list of consolidated entities is included as part of the notes to the company financial statements. Joint ventures are not consolidated, but are included under financial non-current assets. Valuation principles of group companies are adjusted where necessary to make them consistent with the applicable accounting principles of APG Group.
All entities over which APG Group exercises dominant or joint control, or significant influence, are designated as related parties. Entities that can exercise dominant control over APG Group are also designated as related parties. The statutory members of the Executive Board and the members of the Supervisory Board of APG Group are also designated as related parties.
An asset is recognized on the balance sheet when it is probable that the future economic benefits of the asset will flow to the company and the amount of the asset can be measured reliably. A liability is recognized in the balance sheet when it is probable that an outflow of resources will result from its settlement and the amount thereof can be measured reliably.
An asset or liability is no longer recognized in the balance sheet if a transaction results in the transfer of all or virtually all rights to economic benefits or risks in relation to the asset or liability to a third party.
Income is recognized in the profit and loss account when an increase in future economic benefits related to an increase in an asset or a decrease in a liability has arisen that can be measured reliably.
Expenses are recognized when a decrease in future economic benefits is associated with a decrease in an asset or an increase in a liability has arisen that can be measured reliably.
Foreign currency translation
Transactions denominated in foreign currencies are, at first recognition, valued in the functional currency through conversion at the spot exchange rate prevailing on the date of the transaction between the functional currency and the foreign currency. Monetary assets and liabilities and non-monetary assets and liabilities denominated in foreign currencies, excluding goodwill, are converted into the functional currency at the rates in force on balance sheet date. Exchange rate differences arising from settlement and conversion are credited or debited to the profit and loss account, unless hedge accounting is applied. Goodwill valued at historical cost in a foreign currency is converted at the exchange rate in force on the transaction date.
Upon consolidation, the balance sheets of group companies prepared in a functional currency other than the euro are converted into euros at the exchange rate in force on balance sheet date. Results in foreign currency are converted at the average exchange rate during the year under review. Currency differences concerning the value of group companies included in the consolidation are recognized in the reserve for conversion differences.
Financial instruments include investments in equities and bonds, trade and other receivables, cash, loans and other financing liabilities, derivative financial instruments and trade and other payables. The valuation of current receivables and payables is treated in the separate paragraphs.
The following categories of financial instruments are included in the financial statements: marketable securities, fixed-income investments, other investments, other financial liabilities and derivatives.
Financial assets and financial liabilities are recognized on the balance sheet from the moment contractual rights or liabilities arise with regard to that instrument. A financial instrument is no longer recognized on the balance sheet if a transaction results in the transfer of all or virtually all rights to economic benefits or risks in relation to the position to a third party. Financial instruments (and separate components of financial statements) are presented in the consolidated financial statements in accordance with the economic reality of the contractual provisions. Presentation is based on separate components of financial instruments as financial assets, financial liabilities, or equity capital. Financial and non-financial contracts may contain agreements that qualify as derivatives. Such agreements are separated from the basic contract and recognized as derivatives if their economic characteristics and risks are not closely related to the economic characteristics and risks of the basic contract, a separate instrument with the same terms would qualify as a derivative, and the combined instrument is not valued at fair value with recognition of changes of the value in the profit and loss account.
Financial instruments that are not separated from the contracts in which they are incorporated, are recognized in line with the basic contract.
Derivatives that have been separated from the basic contract will be recognized in line with the accounting policy for derivatives to which cost price hedge accounting is not applied, are stated at cost or fair value, whichever is lower.
Derivative financial instruments and hedge accounting
Derivative financial instruments are measured at the lower of cost and market value, unless hedge accounting is applied. APG Group has taken out forward exchange contracts to hedge the currency risk of its foreign subsidiaries’ expected future cash outflows in foreign currencies. These forward exchange contracts are measured at cost, using the hedge accounting method. As long as the hedged item has not yet been recognized in the balance sheet under cost-price hedge accounting, the hedge instrument is not revalued. Any ineffective component of a hedge is recognized in profit and loss as far as this concerns a loss. Internal derivatives relating to back-to-back agreements between APG Group and APG Asset Management are recognized in APG Group’s company financial statements at the lower of cost price or market value.
Valuation differences arising in the valuation of the forward exchange contracts designated as hedges of net investment in foreign subsidiaries are recognized directly in equity, in the reserve for conversion differences, to the extent that the hedge is effective. The ineffective component is recognized in profit and loss.
When using cost price hedge accounting, the first valuation and the basis for recognizing the hedge instrument on the balance sheet and determining its result depends on the hedged position. If the hedged position is recognized on the balance sheet at cost price, the derivative is also carried at cost price.
If derivative instruments expire or are sold, the cumulative profit or loss until that point, which had not yet been recognized in the profit and loss account, will be included on the balance sheet as an accrued item until the hedged transactions take place. If the transactions are no longer expected to take place at all, the cumulative profit or loss will be transferred to the profit and loss account.
APG Group has documented its hedging strategy in writing. The assessment of whether, when using hedge accounting, the derivative financial instruments are effective in offsetting the currency results of the hedged items is documented in writing using generic documentation. Hedge relationships are terminated if the respective derivative instruments expire or are sold.
APG Group will conduct a quantitative effectiveness assessment, as a minimum at each formal reporting moment and upon inception of the hedge.
As a pension administrator, APG Group is faced, as regards financial flows and positions, with risks that may influence financial stability. These concern liquidity risk, credit or counterparty risk, concentration risk and interest and exchange rate risk. In order to limit these risks as far as possible APG Group has a policy of risk avoidance, in which preservation of capital takes precedence. Conditions have been established for placing surplus liquidity with external parties and on attracting deposits.
APG Groep monitors the liquidity position by means of successive liquidity budgets. Management sees to it that the organization always has sufficient liquidity available to be able to meet its commitments. This is also taken into account of the liquidity requirements imposed by regulators. Temporary surpluses of liquid assets are placed in the money market for a short time, while applying the risk-limiting conditions, with parties with at least an A-rating according to agencies Fitch and Moody's.
Credit risk is defined as the risk that the counterparty to a financial instrument fails to fulfill its obligation, resulting in a financial loss for APG. The credit risk for APG is mainly limited to receivables from customers, group companies, related parties and banks. The receivables from clients are receivables that arise on a monthly basis with regard to the fees that APG receives for performed activities for asset management and pension administration. These receivables are settled monthly. With regard to banks, APG only uses products for liquidity management which, according to its treasury statutes, are permitted, such as deposits and cash with financial institutions that have at least an A-rating according to rating agencies Fitch and Moody's. The outstanding deposits and cash with banks is spread over various institutions to reduce counterparty risk. The credit risk on forward currency contracts is limited by through the exchange of cash collateral. The company runs a credit risk on loans and receivables included under financial fixed assets, trade and other receivables, cash and cash equivalents and the positive market value of derivative financial instruments. The maximum credit risk run by the company amounts to € 823.1 million per 31-12-2021.
In the interest of risk diversification for the concentration risk on cash and cash equivalents, APG makes use of multiple financial institutions with at least an A-rating according to rating agencies Fitch and Moody's and strives to hold a maximum of 20 percent within one party.
APG Group also runs a concentration risk if the company is dependent upon the provision of services of one client. APG Group has a concentration risk given the relative importance of the largest client. This risk is mitigated by giving substance to the strategic partnership in continuous dialogue with the biggest client and by means of active stakeholder management.
Interest rate risk
Interest rate risk is the risk that the value of investments may fluctuate due to changes in market interest rates. Since APG Group holds no bonds or equities and has no borrowings or loans at variable interest rates, the interest rate risk is very low.
APG Group has taken out forward exchange contracts to hedge the currency risk of its foreign subsidiaries’ expected future cash outflows in foreign currencies. These FX forwards are measured at cost, using the hedge accounting method.
Capital requirements apply to the asset management activities of subsidiary APG Asset Management N.V.. These requirements are set out in the Alternative Investment Fund Managers Directive (AIFMD) and the Investment Firm Regulation and Directive (IFR/IFD). This legislation includes rules for calculating the required legal capital and rules for determining the available legal capital. APG Asset Management wants to have sufficient capital available to cover financial damage and losses resulting from the identified risks. In order to assess whether sufficient qualifying capital is available, APG determines the sufficiency using the ICLAAP (Internal Capital and Liquidity Adequacy Assessment Process). With the ICLAAP, APG Asset Management applies, in addition to the required calculations, a risk-based approach to assess the level of required capital. Historical financial data, a future-oriented business plan and scenario analysis are also used to determine whether the required capital is future-proof. During 2021, APG Asset Management has complied with the capital requirements according to the AIFMD as well as the IFR/IFD.