2007
Report and Accounts
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 1
Table of Contents
Data on Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Members of the Company’s Boards
Management Report
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Balance Sheet and Income Statement
Notes to the Balance Sheet and Income Statement
Legal Certification of the Accounts
Banco de Portugal Pension Fund
Statement of Assets and Liabilities and Income and Expenditure Account
Notes to the Statement of Assets and Liabilities and Income and Expenditure Account
Certification of the Accounts
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Data on Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. was incorporated on 3
June 1988 to manage the Banco de Portugal Pension Fund.
The Company’s share capital is 1,000,000 euros.
Shareholders:
• Banco de Portugal, with a shareholding corresponding to 97.77% as at 31
December 2007; and
•
Members and beneficiaries of the Banco de Portugal Pension Fund.
Its registered office is at Rua do Comércio, no. 148, in Lisbon.
It has offices at Av. da República, no. 57, 7th floor, in Lisbon.
As at 31 December 2007:
• The Company’s Net Assets stood at 2,627,432.9 euros;
• The Company’s Shareholders’ Equity amounted to 2,123,632.5 euros;
• The value of the Pension Fund closed at 1,183,275,079.3 euros; and
• The total liabilities of the Pension Fund amounted to 1,175,298,861.9 euros.
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Members of the Company’s Boards
Shareholders’ Meeting
Chairman
Armando da Silva Couto
Secretary
Hernâni Fontoura Pires
Board of Directors
Chairman
António Manuel Martins Pereira Marta
Director
Manuel Ramos de Sousa Sebastião
Managing Director
Helena Maria de Almeida Martins Adegas
Single Supervisor
Ernst & Young Audit & Associados – S.R.O.C., S.A.
Alternate Single Supervisor
Rui Abel Serra Martins, R.O.C.
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Management Report
To the Shareholders,
Pursuant to the law and the articles of association, the Board of Directors hereby submits the
2007 Report and Accounts for your appraisal.
1. FOREWORD
The Banco de Portugal Pension Fund is composed of an autonomous set of assets and
liabilities allocated exclusively to meeting the liabilities endorsed by Banco de Portugal in
respect of the payment of retirement, disability and widower’s benefits, as well as the
payment of post-retirement charges relating to contributions to the healthcare and welfare
service. As at 31 December 2007, the value of the Fund was 1,183.3 million euros.
The financial management of the Pension Fund is oriented towards covering the potential
fluctuations in the liabilities endorsed, which means that their accurate estimation is
especially critical. Accordingly, particular attention is paid to the actuarial and financial
assumptions used, especially the future estimated cash flow discount method, long-term
growth projections for wages and pensions and, finally, the life expectancy prospects of the
population covered.
In this context, both the Fund’s assets and liabilities are valued at their fair market value,
using for the liabilities a discount rate calculated on the basis of the daily interest rates
applicable to very low-risk instruments for the relevant maturities. This methodology is
grounded on the assumption that the present value of the liabilities has to represent at every
point in time the capital that would have to be invested in low-risk investments to meet
future payments. The discount rate determined at the end of 2007 and used to calculate the
liabilities as at 31 December was 5.15%. This corresponds to the average interest rate, on
that day, of inflation-linked Euro Zone government bonds for the different maturities
existing in the market, taking into account the maturity structure of the Pension Fund’s
liabilities, adjusted by a spread that represents the difference between the interest rates for
sovereign debt and very low-risk interest rates.
Particular attention is also paid to the assumptions relating to the future growth of wages and
pensions, using to this end estimated inflation rates extracted from inflation-linked securities,
which are adjusted, in the case of wages, so as to incorporate the career evolution of active
employees.
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With regard to life expectancy, we seek to incorporate as reliable an estimate as possible in
order to avoid underevaluating the liabilities. In 2007, we continued to use the TV 88/90
mortality table, already adopted in the preceding year, whose correspondence to reality was
confirmed by an empirical study performed on the basis of the Pension Fund’s demographic
data up to 2006.
Starting from an accurate estimation of the liabilities and their updating as market
fluctuations affect the discount rate and the expected growth in wages and pensions, the
financial management of the Pension Fund is oriented towards the combination of two goals:
to contain the risk of reduction in the funded ratio, corresponding to the ratio between the
Fund’s assets and its liabilities, and to simultaneously maximise the profitability of its asset
portfolio.
To this end, a strategic benchmark is determined each year. This guides the portfolio in
respect of the most efficient breakdown between three main asset classes (bonds, shares and
real estate), as well as the maturity structure deemed most appropriate for the bond subcomponent, or, further, for the breakdown between the main geographic regions.
In 2007, we maintained our investment policy with reference to the sensitivity of the value of
the Fund’s liabilities to changes in interest and inflation rates, from a perspective of an
integrated management of assets and liabilities, whose corollary is a major concentration of
the portfolio in bonds (80%), almost entirely inflation-linked long-term Euro Zone
government bonds.
In the context of the Pension Fund’s aforementioned investment policy, traditional return and
risk measurements applied to the individual management of assets lose their significance, the
indicators aggregated from an “assets versus liabilities” (A/L) perspective being considered
more appropriate.
In 2007, the funded ratio of the Fund increased to 100.7%, and the A/L return stood at 2.7%
(the return on assets exceeded the increase in liabilities by 2.7%). The 1-month value-at-risk
of the assets with regard to the liabilities with a confidence level of 95% was limited to an
average value corresponding to 0.87% of total liabilities.
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Pension Fund - Highlights
31/12/2006
31/12/2007
Active employees
1709
1689
Retirees
1734
1728
Pensioners
486
486
Discount rate
4.52%
5.15%
Estimated long-term inflation rate
2.23%
2.36%
TV 88/90
TV 88/90
Population Data
Actuarial and Financial Assumptions
Mortality table
Assets (million € and %)
Bonds
966.7
80.0%
946.3
80.0%
Real estate
165.3
13.7%
161.1
13.6%
Shares
76.6
6.3%
75.8
6.4%
Total
1208.6
100.0%
1183.3
100.0%
Liabilities (million €)
1226.2
1175.3
Funded ratio
98.6%
100.7%
A/L return
2.4%
2.7%
A/L risk (1-month VaR, 95% confidence)
0.93%
0.87%
Coverage Ratio
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2. BUSINESS PURSUED BY THE MANAGEMENT COMPANY
During 2007, Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. employed
34 people on average, 62% of whom were women, three quarters of the employees having a
university degree.
The human resource training policy encourages the high qualification of the employees by
supporting attendance of post-graduate studies and master degrees, as well as specialist
training actions.
Throughout 2007, the Management Company continued to monitor the markets and manage
the Pension Fund’s financial and real estate portfolio. In particular, the real estate portfolio
was altered, one office building having been acquired and three office buildings having been
sold.
The actuarial monitoring of the Pension Fund’s liabilities was ensured throughout the year,
focusing particularly on the forecast variations expected for year-end.
In compliance with the provisions of Decree-Law no. 12/2007, the Management Company
distributed brochures containing information on the benefits of the Pension Plan, as well as
individual sheets with the status of benefits in progress as at 31/12/2006, to the members of
the Fund.
Following the execution of a new securities custody agreement in 2006, a securities lending
programme was implemented in 2007.
In the field of systems and information technology, the development and modernisation of
the technological platform proceeded, adapting the infrastructure to market developments
and business needs.
A project to identify and assess the Management Company’s operational risks was executed
in order to determine the scope of the Business Continuity Plan to be completed in 2008.
This project made it possible to identify critical points and organisational and technical
weaknesses, as well as to define protection and risk-mitigation strategies, fostering the
development of a safety culture.
On 31 December 2007, the Management Company’s shareholders’ equity amounted to 2.12
million euros (compared to 2.01 million in 2006), which resulted in an increase in its
solvency margin to 114.3% (106.8% in 2006).
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3. MACROECONOMIC BACKGROUND AND MARKET DEVELOPMENTS
During the second half of 2007, there were some disruptions in the most developed
economies, resulting from the crisis in the US real estate market. The crisis hit in mid-August
upon the news of successive defaults in poor-quality mortgage loans (the so-called sub prime
market) and affected the financial markets considerably. Most financial institutions
experienced major losses in their asset portfolio and their funding needs led to dramatic hikes
in money market interest rates. As a result of this crisis, volatility increased considerably in
the markets, the highest-risk asset classes having experienced significant losses.
The main central banks of the world, seeking to normalise the situation and avoid the
financial crisis contaminating the real economy, adopted concerted measures to supply
liquidity to the banking system and contribute to reducing the money market interest rates.
Economic growth slowed down in most developed economies in 2007, standing at 2.3% in the
Euro Zone, 2.2% in the USA and 2% in Japan. In the emerging economies, the levels of
economic growth remained robust, particularly in China (11.1%) and India (8.7%).
In turn, the Portuguese economy grew 2% during 2007, which represents a slight increase
compared to 2006, albeit lower than the average growth in the Euro Zone.
Inflation rose significantly in 2007 in most economies, standing at 3.1% in the Euro Zone,
4.1% in the USA and 0.8% in Japan. In Portugal, the Harmonised Consumer Price Index rose
by 2.4%, less than the average inflation in the Euro Zone.
Table 1: Economic growth and inflation
Euro Zone
Portugal
USA
Japan
Gross Domestic Product (%)
2008P 2009P
2006
2007
2.7
2.3
1.9
2.0
1.7
2.0
2.0
2.2
3.3
2.2
2.0
2.2
2.8
2.0
1.6
1.8
Consumer Prices (%)
P
P
2006 2007 2008 2009
1.9
3.1
2.5
2.0
3.1
2.4
2.6
2.2
3.3
4.1
2.7
1.9
0.3
0.8
0.6
0.4
Sources: OECD,Economic Outlook (December 2007), Eurostat and Banco de Portugal.
(p) Estimates and forecasts.
The ECB continued with the cycle of rises in interest rates during the first half of the year,
having interrupted it in the second half due to the marked anxiety in the financial markets,
and despite the inflationary pressures persisting in the Euro Zone. The reference rate for
refinancing operations stood at 4% at the end of 2007, which represents an increase of 0.50
percentage points over the year. In turn, the US Federal Reserve, in an attempt to boost
economic growth and mitigate the current financial crisis, cut the Fed Funds Rate by 1
percentage point over the year, to close at 4.25% at year-end.
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Interest rates in the Euro Zone increased along all segments of the curve, with steeper
increases in the shortest maturities as a result of the shortage of funds and strong aversion to
credit risk originated by the crisis in the US sub prime market.
Table 2: Evolution in the main interest rates in the Euro Zone
Dec-06
Dec-07
Change (p.p.)
ECB Intervention Rate
Main refinancing operation rate
3.50%
4.00%
0.50
Money Market Yields (*)
3-month
6-month
1-year
3.73%
3.85%
4.03%
4.68%
4.71%
4.75%
0.959
0.854
0.717
Treasury Bond Yields (**)
2-year
10-year
20-year
3.88%
3.95%
4.07%
4.02%
4.35%
4.62%
0.135
0.401
0.549
Source: REUTERS
(*) Euro Zone benchmark: Euribor.
(**) Euro Zone benchmark: German public debt securities.
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Chart 1: Evolution of interest rates in the Euro Zone during 2007
In the private debt market, as a result of the financial crisis that became evident in the second
half of the year, there was a major increase in spreads during 2007, reflecting the increase in
aversion to risk by most investors. The Itraxx Europe 5-year index, which reflects the cost of
hedging the risk of default by issuers of 5-year bonds, doubled in 2007, from approximately
25 to 50 basis points.
Despite the environment that characterised the second half of the year, these six months were
positive overall for the main share markets, save for Japan. The European DJ Eurostoxx 50
index gained approximately 6.8%, the US S&P 500 rose 3.5% and the Japanese Nikkei 225
lost 11.0%. The Portuguese PSI-20 index rose 16.3%. This situation changed dramatically
when most stock exchanges fell at the beginning of 2008.
On the exchange market, the euro appreciated 11% against the dollar, propelled by several
factors, notably the different conduct of the ECB and the Federal Reserve, the reshaping of
the foreign currency reserves of several central banks by substituting euros for US dollars,
and the better economic performance of the Euro Zone compared to the US economy.
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4. PENSION PLANS
4.1. OVERVIEW
Banco de Portugal ensures, through the Pension Fund, the right to retirement, disability and
widower’s benefits (including possible supplementary and death benefits), as well as the
payment of post-retirement charges relating to contributions to the healthcare and welfare
service (Serviço de Assistência Médico-Social - SAMS).
Pensions paid by way of retirement and widower’s benefits result from the summation of the
amounts calculated on the basis of each component of pensionable wages, in compliance
with the applicable collective employment contract and the Bank’s internal regulations.
The Pension Plan encompasses four schemes relating to base wages and seniority and three
schemes relating to fringe benefits. Of these schemes, only two remain open to new
admissions in the Bank and, as a whole, they ensure the overall pension resulting from the
various components of pensionable wages.
4.2. DEVELOPMENTS IN THE POPULATION COVERED BY THE PENSION
FUND
We would like to highlight the significant maturity of the population covered by the Banco
de Portugal Pension Fund, where the number of beneficiaries is greater than that of its active
members. The resulting weight of the liabilities for total pensions payable strongly restricts
the attitude adopted in respect of the management of the Fund’s assets.
Table 3: Population covered by the Pension Fund
Active
Retirees
Pensioniers
Total
31-12-2005 31-12-2006
1,704
1,709
1,744
1,734
475
486
3,923
3,929
Active1 / Beneficiaries2
Ratio
0.77
0.77
Change
2005/2006
5
-10
11
6
31-12-2007
1,689
1,728
486
3,903
Change
2006/2007
-20
-6
0
-26
0.76
1
Members; 2Retirees and Pensioners.
On 31 December 2007, the Pension Fund covered 1,689 members (active employees), 1,728
retirees and 486 pensioners.
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4.3. DEVELOPMENTS IN BENEFITS/CHARGES AND CONTRIBUTIONS
Chart 2 shows the developments in the volume of benefits and charges paid by the Pension
Fund in the last 10 years.
In 2007, the amount of matured pensions reached 44.3 million euros, which represents an
increase of 3.4% compared to the preceding year.
Sums paid in 2007 by way of redeemed capital and death benefit reached 0.7 million euros
and 0.3 million euros, respectively. These same headings had reached 1.3 million euros and
0.4 million euros, respectively, in 2006.
Charges borne by the Pension Fund in respect of contributions to the SAMS concerning
pensions paid amounted to 2.9 million euros in 2007, compared to 2.8 million euros paid in
2006.
Chart 2: Volume of benefits and charges borne by the Fund
(thousand euros)
60,000
50,000
40,000
30,000
20,000
10,000
0
1998
1999
Pensions
2000
2001
Redeemed capital
2002
2003
Death benefits
2004
2005
2006
2007
Contribuitions to the SAMS
Given that the schemes funded by the Pension Fund are defined-benefit schemes,
contributions are of a “dependent variable” nature. Thus, periodical adjustments to the
regular contribution rates and, possibly, payment of extraordinary contributions as a result of
several factors, such as changes in the behaviour of financial variables, non-forecast
developments in benefits or, further, modification/updating of any calculation assumptions,
may be required.
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In 2007, total contributions amounted to 22. 7 million euros, being unnecessary any
extraordinary contribution to cover any shortfall in the Pension Fund’s assets or as a result of
any change to the assumptions.
4.4. ACTUARIAL VALUATION
4.4.1. Actuarial and financial assumptions
The main actuarial and financial assumptions are those listed in this point, without prejudice
to some individually considered adjustments.
Assumptions resulting from the Plan
Normal retirement age
Number of monthy pension instalments
Number of monthly wage instalments
Actuarial and financial assumptions
Discount rate
Growth rate – pensions
Growth rate – wages
Growth rate – wage tables
Growth rate – minimum monthly guaranteed wages
2007/2008 increase in wages
Minimum monthly guaranteed wages in the following year
Mortality table
Disability table
Turnover table
Percentage of married staff
Age difference between members and spouses
65
14
14
31-12-2006
4.517%
2.228%
3.228%
2.228%
2.228%
2.500%
403 €
31-12-2007
5.153%
2.359%
3.359%
3.359%
2.359%
2.500%
426 €
TV 88/90
1978 - S.O.A. Trans. Male (US)
T-1 Crocker Sarason (US)
80%
3 (male individuals being older)
The discount rate determined at the end of 2007 and used to calculate the liabilities as at 31
December was 5.15%. This corresponds to the average interest rate, on that day, of inflationlinked Euro Zone government bonds for the different maturities existing in the market,
taking into account the maturity structure of the Pension Fund’s liabilities, adjusted by a
spread that represents the difference between sovereign debt interest rates and very low-risk
interest rates.
The methodology to set the actuarial and financial assumptions is to mark them to market.
As a result of the market’s behaviour in 2007, discussed in point 3., the discount rate and the
inflation rate increased by 0.636 and 0.131 percentage points, respectively, compared to the
end of the preceding year.
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In 2007, we continued to use the TV 88/90 mortality table, whose correspondence to reality
was confirmed by an empirical study performed on the basis of the Pension Fund’s
demographic data up to 2006.
The actuarial and financial assumptions used in the Minimum Solvency scenario determined
by the Instituto de Seguros de Portugal (the regulatory and supervisory body) are the
following:
Actuarial and financial assumptions
Discount rate
Growth rate – pensions
Growth rate - wages
Minimum guaranteed wages in the following year
Mortality table
Disability table
Turnover table
Percentage of married staff
Age difference between members and spouses
Minimum Solvency
31-12-2007
31-12-2006
4.500%
4.500%
2.228%
2.359%
0.000%
0.000%
403 €
426 €
TV 73/77
1978 - S.O.A. Trans. Male (US)
-/80%
3 (male individuals being older)
4.4.2. Results of the actuarial valuation
The past services liabilities amounted to 1,175.3 million euros, of which 665.4 million
corresponds to liabilities for pensions payable and 509.9 million to past services liabilities of
active employees.
Past services liabilities (PSL)
Retirees and pensioners
Active employees
31-12-2006
(euros)
31-12-2007
1,226,238,773
691,158,181
535,080,592
1,175,298,862
665,387,253
509,911,609
Between 31 December 2006 and 31 December 2007, liabilities decreased by 50.9 million
euros.
This reduction corresponds to an annual overall decrease of 4.15% in the amount of past
service liabilities/reserve, as a result of the following combined effects:
• Expected/Normal/Regular annual increase of 2.21% in liabilities; and
• Unforeseen annual decrease of 6.36% in liabilities, corresponding to an actuarial
loss (resulting from the difference between long-term assumptions and the actual
figures) and a financial gain (resulting from the assumptions being marked to
market, being particularly noteworthy the actuarial gain associated with the rise in
the real discount rate in 2007).
However, for the purposes of computing the “Assets-Liabilities” results, the percentage
change in the Fund’s liabilities resulting from market fluctuations has to be determined.
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Thus, in 2007 a rate of -2.5% was calculated, which reflects the revaluation of liabilities
resulting from the marking to market of the financial and actuarial assumptions, recognising
the pension and contribution flows and excluding the change in liabilities resulting from
factors external to the financial management of the Fund.
On 31 December 2007, the regulatory minimum laid down in Notice no. 12/2001 of Banco
de Portugal amounted to 1,071.2 million euros and the minimum solvency laid down by the
Instituto de Seguros de Portugal stood at 1,008.0 million euros.
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5.
PORTFOLIO STRUCTURE AND RISK MANAGEMENT
The Pension Fund’s investment policy is defined within the applicable regulatory provisions
issued by the Instituto de Seguros de Portugal (ISP), notably in respect of the breakdown of
its assets and the use of derivatives, repos and securities lending transactions, and within
more restrictive internal provisions laid down by the Management Company itself pursuant
to the desired risk profile.
The portfolio structure is continuously analysed and monitored with a view to the daily
identification of the degree of exposure to different types of risks and the corresponding way
to mitigate them, which is achieved by determining limits and resorting to hedging
instruments.
5.1. Strategic benchmark for 2007
For the dual purpose of limiting the risk of observing a funded ratio reduction and
maximising the portfolio return, a strategic benchmark was selected for the Pension Fund’s
portfolio structure in 2007. Its breakdown, which is summarily presented, conforms to the
established risk profile and was determined on the basis of an analysis of the impact of a
likely set of scenarios for developments in the financial markets and a risk measurement
model.
Chart 3: 2007 strategic benchmark: average annual breakdown
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5.2. “Assets-Liabilities” value-at-risk
The risk of reduction in the funded ratio of the Pension Fund is assessed and monitored by
calculating the 1-month Value-at-Risk for a confidence level of 95%.
Chart 4: 1-month value-at-risk of “Assets-Liabilities”
1.0%
0.9%
0.8%
0.7%
0.6%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
This risk measurement tool, whose developments in 2007 are shown in Chart 4, corresponds
to the reduction in the funded ratio at each point in time, in percentage points, which has an
associated estimated probability of 5% of being exceeded over a 1-month period.
5.3. Breakdown by asset class
The portfolio structure was determined with reference to the breakdown of the strategic
benchmark. However, some departures were adopted in order to incorporate short-term
expectations concerning market developments.
The focus on an “Asset-Liability”-oriented investment policy, derived by the goal of limiting
the risk of reduction in the funded ratio, resulted in a strong exposure to assets wich are
correlated with liabilities, particularly long-term treasury bonds linked to Euro Zone
inflation.
Thus, the average exposure to bonds in 2007 was 75.8% (almost entirely public debt), while
shares and real estate represented 8.5% and 15.7%, respectively, of the value of the asset
portfolio. At the end of the year, there was a reduction in the exposure to real estate as a
result of a scheduled sale, which reduced the weight of this asset class to 13.6%. In turn, the
exposure to equities was also reduced, to 6.4%.
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The breakdown of the equity component of the portfolio shows an exposure predominantly
represented by the Euro Zone and US markets (73%).
Chart 5: Breakdown by asset class (average annual values)
5.4. Leverage-adjusted modified duration gap
The degree of sensitivity of the funded ratio to changes in real interest rates is assessed and
monitored by calculating the leverage-adjusted modified duration gap.
In the light of expected rises in medium- and long-term interest rates in the Euro Zone, the
investment policy was set in such a way that this indicator assumed negative levels,
reflecting a value of the asset portfolio less sensitive to changes in interest rates than the
value of liabilities.
Given the high modified duration level of the Pension Fund’s liabilities and the fact that the
portfolio also includes low interest sensitive assets, the average adjusted differential
registered in 2007 was achieved by holding a bond portfolio with a high modified duration.
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Table 4: Leverage-adjusted modified duration gap
Average 2007 values
a)
Modified duration of liabilities for past services
14.4
b)
Modified duration of bonds
16.5
c)
Weight of bonds
75.8%
d)
Funded ratio
99.6%
Leverage-adjusted modified duration gap
=b)xc)-a)/d)
-2.0
5.5. Breakdown of the bond portfolio by issuer type
The monitoring of the credit risk resulting from the exposure to security issuers and
counterparties is ensured by restricting investments to instruments and institutions of reputed
safety and financial robustness, as well as by monitoring the ratings assigned to them by
international agencies. These ratings must conform to the minimum levels laid down in the
established Investment Policy Guidelines.
The bond portfolio was mainly composed of inflation-linked securities, with a term
strucuture similar to the s liabilities's term structure., In this way, we seek to mitigate the risk
of reduction in the funded ratio of the Pension Fund resulting from a possible increase in the
inflation rate, since the value of these securities is also conditional upon developments in
inflation
Bearing in mind that liquid inflation-linked securities in the Euro Zone are almost
exclusively public debt, this represented virtually all the bond portfolio in 2007. The
instability in the credit markets, particularly in the second half of the year, also contributed to
limiting the weight of the remaining debt.
Table 5: Exposure of the fixed income portfolio by type of issuer / counterparty
Governments
Average 2007 values (%)
98.2%
Supranational
0.3%
Financial Inst.
1.5%
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5.6. Breakdown of the bond portfolio by rating
The Pension Fund’s bond portfolio was almost entirely composed of issues rated at least AA;
issues rated AAA represented approximately 60% of the bond portfolio.
Chart 6: Breakdown of the bond portfolio by rating
( average annual values)
0.3%
40.2%
59.5%
AAA
AA
A
5.7. Breakdown of the Pension Fund’s asset portfolio by region
Taking as a whole, the Pension Fund’s portfolio maintained a predominant exposure to the
Euro Zone countries, which represented 94.6% of its total value in 2007. Exposure to other
geographic regions materialised mostly through the equity portfolio.
Chart 7: Breakdown of the Pension Fund’s portfolio by region
( average annual values)
0.6%
2.8%
1.8%
94.6%
Euro Zone
Europe - other
Asia / Pacific
USA
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5.8. Exposure to exchange-rate risk
Bearing in mind the goal of mitigating the risk of reduction in the funded ratio associated
with a possible depreciation of the equity investment vehicles currencies denominations, a
foreign currency hedging policy close to 100% was followed. The assumed level of the
exchange-rate risk was, as consequence, low (approximately 0.11% of the total portfolio)
and related to the technical and tactical asset management.
The exposure to EUR/USD was the most significant exposure to exchange-rate risk, (nearly
0.07% of the total value of the Pension Fund’s portfolio).
Table 6: Average exposure of the portfolio to exchange-rate risk
Average exposure of the portfolio to
JPY
CHF
GBP
USD
0.01%
0.02%
0.01%
0.07%
exchange-rate risk
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6.
RESULTS AND FINANCIAL POSITION OF THE PENSION FUND
Both the Pension Fund’s liabilities and the assets portfolio were influenced by the
developments in the financial markets, particularly the rise in medium- and long-term
interest rates in the Euro Zone.
Liabilities for past services are valued at market prices taking into account the interest rates
and the inflation expectations. The rise in interest rates over 2007 led to a reduction in the
value of liabilities for past services, which was, however, partially offset by an increase in
expected inflation.
The adjusted value of liabilities for past services (taking into account the impact of pension
payments net of received regular contributions and excluding the impact of exogenous
factors) decreased by 2.5% in 2007. From a perspective of integrated management of assets
and liabilities, this rate of change sets the reference for the rate of return.
Table 7: Financial management results of the Pension Fund
Rates of return on assets
(a) Adjusted change in liabilities
-2.5%
Asset portfolio
Bonds
-2.3%
Shares
3.3%
Real estate
(b) Total assets
(c) Financial management results
10.5%
0.10%
2.7%
(c)=(1+b)/(1+a)-1
Given both the Asset-Liability focus of the investment policy and the aim of controlling the
risk of observing funded ratio reductions, the portfolio assumed a strong exposure to the
assets which are highly correlated with the liabilities, particularly long-term inflation-linked
Euro Zone treasury bonds. Accordingly, the portfolio’s return was also adversely affected
by the interest rates rise, albeit to a lesser degree than the cost of liabilities, having reached
+0,1%.
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In 2007, the Pension Fund’s “Assets-Liabilities” results amounted to +32.5 million euros,
nearly to 2.7% of the value of liabilities for past services. Two contributions are at the
source of these results:
• A positive contribution of 1.8% resulting from the management’s position in respect of
the modified duration adjusted differential, which corresponded, in practice, to a
decision to maintain the sensitivity of the value of the assets portfolio to changes in
interest rates lower than the sensitivity of the value of the liabilities to the same
changes; and
• An impact of 0.9% associated with the exposure of the portfolio to assets poorly
correlated to the liabilities, where the significance of the return on the real estate
portfolio should be highlighted (10.5%).
Concerning the use of the financial management results generated in 2007 were issued as
follows:
• 2.1% corresponded to the increase in the funded ratio of the Pension Fund, from 98.6%
in December 2006 to 100.7% in December 2007;
• The remaining 0.6% was “spent” on actuarial departures and other factors which were
also exogenous to the financial management of the Fund.
Chart 8: Source and application of the “Assets-Liabilities” management results
(in % of the value of liabilities)
Total results; 2.71%
External factors and
actuarial departures;
0.58%
Other assets; 0.89%
Fixed income;
1.82%
Increase in the level of
funding; 2.12%
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Developments in the financial condition
On 31 December 2007, the value of the asset portfolio of the Banco de Portugal Pension
Fund totalled 1,183.6 million euros. Total liabilities for past services amounted to 1,175.3
million euros.
Chart 9: Developments in the funded ratio of the Pension Fund
(amounts in euros)
101.0%
100.0%
99.0%
98.0%
97.0%
96.0%
95.0%
94.0%
2002
2003
2004
2005
2006
2007
At year-end, the Fund had an overall funded ratio of 100.7%, reflecting an increase of 2.1
percentage points compared to the amount witnessed at the end of 2006.
For the purposes of Notice no. 12/2001 of Banco de Portugal, as amended by Notice no.
4/2005, the degree of coverage stood at 110.5% of the minimum required. The requirements
issued by the Instituto de Seguros de Portugal were also fully met, the minimum solvency
coverage having reached 117.4%.
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Table 8: Financial condition of the Pension Fund
(amounts in euros)
(1)
(2)
Value of the Pension Fund
Liabilities for past services
(L.P.S.)
(3)=(1)/(2)
Funded ratio
(4)
(5)=(3)/(4)
Minimum mandatory level of funding (BP'’s Notice no. 12/2001)
Level of coverage achieved
(6)
(7)=(3)/(6)
Level of funding of the minimum solvency
Level of coverage achieved
(1)
(1)
31-12-2006
31-12-2007
1,208,550,035
1,226,238,773
1,183,553,387
1,175,298,862
98.6%
100.7%
88.2%
111.8%
91.1%
110.5%
78.7%
125.3%
85.8%
117.4%
As amended by BP’s Notice no. 4/2005.
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7. PROPOSAL FOR THE
MANAGEMENT COMPANY
APPROPRIATION
OF
PROFITS
OF
THE
In the 2007 financial year, Sociedade Gestora do Fundo de Pensões do Banco de Portugal,
S.A. made net profits of 112,728.0 €, which we propose to appropriate as follows:
Legal reserve
Free reserves
Total
5,636.4 €
107,091.6 €
112,728.0 €
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8. CLOSING REMARKS
The Board of Directors would like to conclude the 2007 Report and Accounts by thanking
Banco de Portugal for its confidence and cooperation.
A word of recognition is also due to the Instituto de Seguros de Portugal for the way it
monitored the business of Sociedade Gestora do Fundo de Pensões do Banco de Portugal,
S.A..
Finally, we would like to highlight the high professionalism and dedication of all the staff of
the Management Company.
Lisbon, 17 March 2008
The Board of Directors
António Manuel Martins Pereira Marta
Chairman
Manuel Ramos de Sousa Sebastião
Director
Helena Maria de Almeida Martins Adegas
Managing Director
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A.
Balance sheet and profit and loss account
Annex to the balance sheet and the profit and loss account
Legal certification of accounts
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BALANCE SHEET - SGFPBP
(EUR)
2007
ASSETS
A.B.
2006
A.P.
A.L.
TANGIBLE FIXED ASSETS:
Buildings and other constructions
Basic equipment
Office equipment
Other tangible fixed assets
57.131
242.085
2.220.845
17.264
2.537.325
15.742
133.503
1.709.769
17.023
1.876.037
41.389
108.582
511.076
241
661.288
44.491
68.873
571.746
692
685.802
117.229
117.229
0
0
0
0
0
0
0
492
492
0
0
492
492
0
492
492
827.059
12
827.047
1.180.880
0
975.903
1.247
977.150
226.619
1.247
227.866
17.973
143.480
3
161.456
0
17.973
143.480
3
161.456
16.573
123.209
248
140.029
4.620.711
1.993.278
2.627.433
2.235.069
INTANGIBLE FIXED ASSETS:
Fixed assets under construction
CURRENT ASSETS
Short-term debts of third parties:
Government and other public entities
Other debtors
Marketable securities:
Bank deposits and cash:
Bank deposits
Cash
975.903
1.247
977.150
ACCRUALS AND PREPAID EXPENDITURE
Accrued income
Prepaid expenses
Deferred tax assets
TOTAL ASSETS
GA = Gross Assets
DA = Depreciation and accumulated provisions
NA = Net Assets
Accountant
Paulo José Antunes Jorge
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as 31 of December
(EUR)
LIABILITIES
2007
2006
Capital
1.000.000
1.000.000
Legal reserve
Free reserves
Results carried forward
Net profit for the year
107.737
903.168
0
112.728
2.123.633
103.843
829.182
0
77.880
2.010.904
195.065
129.961
234
1.413
243.935
46.599
292.181
423
2.741
56.628
18.417
78.208
15.726
829
16.555
15.191
805
15.995
503.800
224.165
2.627.433
2.235.069
EQUITY
TOTAL EQUITY
PROVISIONS FOR RISKS AND CHARGES
LIABILITIES
Short-term debts to third parties:
Other shareholders
Other creditors
Suppliers, c/a
Government and other public entities
ACCRUALS AND INCOME COLLECTED IN ADVANCE
Accrued expenses
Income collected in advance
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Board of Directors
António Manuel Martins Pereira Marta
Manuel Ramos de Sousa Sebastião
Helena Maria de Almeida Martins Adegas
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INCOME AND EXPENSES ACCOUNT - SGFPBP
EXPENSES
(EUR)
2006
2007
Supplies and services from third parties
1.080.288
1.027.299
Staff costs
1.965.206
1.986.185
230.484
257.522
46.165
22.597
7.675
8.858
65.104
8.093
3.394.922
3.310.555
12
991
4.139
6.003
3.399.073
3.317.549
5.882
12
3.404.955
3.317.561
43.009
30.332
3.447.964
3.347.893
Net profit and loss for the year
112.728
77.880
Total
3.560.692
3.425.773
105.398
54.349
159.747
155.737
112.728
69.456
33.328
102.784
108.212
77.880
Amortisation of tangible and intangible fixed assets
Taxes
Other operational costs and losses
Provisions for risks and charges
(A)
Provisions for financial holdings
Interest and similar costs
(C)
Extraordinary costs and losses
(E)
Tax on profit
(G)
Summary:
Operational profit and loss: (B) - (A) =............................
Financial profit and loss: (D - B) - (C - A) =....................
Current profit and loss: (D) - (C) =..................................
Profit and loss before taxes: (F) - (E) =.....................
Net profit and loss for the year: (F) - (G) =.....................
Accountant
Paulo José Antunes Jorge
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 32
as 31 of December
(EUR)
2007
2006
INCOME
Supply of services
Supplementary income
(B)
Income from marketable securities and other
Financial holdings
Other interest and similar income
(D)
Extraordinary income and profits
(F)
Total
3.489.279
3.369.279
11.041
10.732
3.500.320
3.380.011
56.023
40.225
2.477
98
3.558.820
3.420.333
1.872
3.560.692
5.440
3.425.773
3.560.692
3.425.773
Board of Directors
António Manuel Martins Pereira Marta
Manuel Ramos de Sousa Sebastião
Helena Maria de Almeida Martins Adegas
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PROFIT AND LOSS ACCOUNT BY FUNCTIONS - SGFPBP
(EUR)
2007
2006
3.489.279
0
3.369.279
0
Gross profit and loss
3.489.279
3.369.279
Other operational income
Distribution costs
Administrative costs
Other operational costs and losses
11.041
0
3.387.247
11.685
10.732
0
3.301.696
3.430
101.388
74.884
0
0
54.349
0
0
33.328
155.737
108.212
43.009
30.332
112.728
77.880
Extraordinary profit and loss
0
0
Taxes on extraordinary profit and loss
0
0
112.728
77.880
Sales and supply of services
Cost of sales and of supply of services
Operational profit and loss
Net financing cost
Income (losses) from branches and associated companies
Income (losses) from other investments
Current profit and loss
Taxes on current profit and loss
Current profit and loss after taxes
Net profit and loss
Accountant
Paulo José Antunes Jorge
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PROFIT AND LOSS ACCOUNT - SGFPBP
(EUR)
2006
2007
Operational activities
Net profit and loss
Adjustments
Amortisation
Provisions
Financial profit and loss
Increase in debts of third parties
Decrease in debts of third parties
Increase in inventories
Decrease in inventories
Increase in debts to third parties
Decrease in debts to third parties
Decrease in income collected in advance
Decrease in accrued income
Decrease in prepaid expenses
Decrease in accrued expenses
Increase in income collected in advance
Profits on the disposal of fixed assets
Losses on the disposal of fixed assets
Decrease in deferred tax assets
Flows from operational activities
112.728
77.880
230.484
65.063
-56.023
253.159
5.243
81.039
214.160
-189
-1.400
-20.272
536
25
-1.815
-132.823
-9.724
-8.471
7.023
63
245
713
543.541
196.222
355.688
380.709
62.480
Investment activities
Revenue from:
Financial investments
Tangible fixed assets
Intangible fixed assets
Assets under construction
Investment subsidies
Interest and similar income
Dividends
Payments relating to:
Financial investments
Tangible fixed assets
Intangible fixed assets
Flows from investment activities
56.023
-205.968
205.743
443.189
Financing activities
Revenues from:
Loans received
Equity increases
Supplements and issue premiums
Subsidies and endowments
Sale of shares
Loss coverage
Payments relating to:
Loans received
Repayment of financial leasing contracts
Interest and similar income
Dividends
Capital reduction and supplementary payments
Purchase of own shares
Flows from investment activities
Cash change and equivalents
Effect of foreign exchange differences
Cash and equivalents at the start of the period
Cash and equivalents at the end of the period
0
0
749.284
0
227.866
977.150
-169.086
0
396.952
227.866
Accountant
Paulo José Antunes Jorge
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Annex to the balance sheet and the profit and loss account
Setting-up and business activity
Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. (Banco de
Portugal's Pension Fund Managing Company) was set up on 3 June 1988 through a
notarial deed entered on folio 74 to folio 76 of the deed book No 677 - C of the 9th
Notarial Office of Lisbon, with the purpose of administering, managing and representing
the Pension Fund of the Banco de Portugal.
The setting up of this Managing Company was authorised by Executive Order No
245/88 of 20 April 1988 of the Ministry of Finance.
The annex to the balance sheet and the profit and loss account is in line with the number
ordering set out in the Official Chart of Accounts (Plano Oficial de Contabilidade –
POC). Numbers that are not mentioned correspond to irrelevant or non-existent
situations or values.
3.
Valuation criteria
The Managing Company’s financial statements were prepared in accordance with the
accounting principles generally accepted in Portugal, i.e. going concern, consistency,
historical cost, prudence, substance over form, materiality and the accruals principle.
The valuation criteria adopted by the Managing Company are the following:
• Fixed assets
Fixed assets are valued at acquisition cost.
Depreciation is calculated over the expected lifetime of the asset, on a constant
straight-line basis. For the assets acquired up to and including 1993 a depreciation
method is used where equal amounts of depreciation expense are taken in each year
of the asset’s useful life. For the assets acquired after this date, a “month convention”
is used, corresponding to the number of months as of the month when the asset was
placed in service.
Depreciation rates are in conformity with the Portuguese tax legislation. The resulting
lifetime is close to that of assets.
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Depreciation rates are charged as follows:
Annual percentage
10%
Basic equipment
Office and social equipment and sundry furniture
10 a 33,33%
Other tangible fixed assets
12,50%
• Marketable securities
Marketable securities are valued at acquisition cost, which includes all acquisitionrelated costs.
Provisions were set up aimed at a full coverage of the value of capital losses in the
securities portfolio and corresponding to a decline in the market value against the
acquisition cost of securities, where the former is lower.
• Recognition of costs and income
Costs and income are recognised when they occur, taking into account the period to
which they refer and regardless of their actual financial settlement.
6.
Deferred taxes
The tax effect of temporary differences between the accounting and tax results was
recognised in terms of the corporate income tax. These differences regard provisions for
securities portfolio depreciation.
(EUR)
Changes in deferred tax assets
Description
Temporary differences that generated deferred tax
assets
Non-tax deductible provisions
Total
Amounts reflected in the balance sheet (25%)
7.
Total 2007
Reversal of the difference
Total 2006
0
0
12
991
12
991
3
248
-245
Staff
During 2007 the average number of staff in the Managing Company was 34.
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10. Fixed assets
Movements in this item were as follows:
(EUR)
INITIAL BALANCE
WRITE-OFFS/
WRITE-DOWNS
INCREASES
FINAL BALANCE
TANGIBLE FIXED ASSETS
Gross assets
Buildings and other constructions
Basic equipment
Office equipment
Other tangible fixed assets
INTANGIBLE FIXED ASSETS
FIXED ASSETS UNDER
CONSTRUCTION (i)
54.735
2.396
0
57.131
186.258
66.958
11.131
242.085
2.221.564
136.369
137.088
2.220.845
17.018
246
0
17.264
117.229
0
0
117.229
0
0
0
0
2.596.804
205.969
148.219
2.654.553
Accumulated depreciation
Buildings and other constructions
10.243
5.498
0
15.742
117.385
27.250
11.131
133.503
1.649.818
197.038
137.088
1.709.768
16.326
697
0
17.023
Other Research and Development
117.229
0
0
117.229
Other Research and Development
Expenses
0
0
0
0
1.911.001
230.483
148.219
1.993.265
685.803
-24.515
0
661.288
Basic equipment
Office equipment
Other tangible fixed assets
NET ASSETS
(i) See Note 14.
14. Fixed assets under construction
At the end of the fiscal year 2007, no fixed assets under construction were recorded.
17. Marketable securities
This item is broken down as follows:
(EUR)
2007
2006
FIXED INCOME SECURITIES
Public debt
147.115
895.451
Sundry
393.524
0
540.639
895.451
286.420
286.420
286.420
286.420
12
991
827.047
1.180.880
VARIABLE INCOME SECURITIES
Mutual funds
Provisions for cash investments
NET VALUE
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32. Guarantees provided
As at 31 December 2007, the Managing Company had provided guarantees to the
amount of €195.065, mostly related to pending judicial proceedings.
During the financial year 2007, a bank guarantee provided to support any contingencies
of the Pension Fund was canceled, as part of a judicial trial, in the amount of €
1,795,362 given that this judicial proceeding was settled in favour of the Pension Fund.
34. Movements in provisions
Movements in “Provisions for cash investments” were as follows:
(EUR)
INITIAL BALANCE
Provisions for cash investments (i)
Provisions for risks and charges
INCREASE
991
1.260
129.961
65.104
130.952
CANCELLATION FINAL BALANCE
2.239
12
195.065
195.077
(i) See Note 3.
Provisions for risks and charges were set up in order to meet possible judicial
contingencies of a compensatory nature.
35. Equity capital
The Managing Company’s equity capital totals €1,000,000, being fully subscribed and
paid up, and is represented by 200,000 shares with the nominal value of €5 each.
37. Share in the subscribed capital
The Banco de Portugal holds 97.78% of the capital, corresponding to 195,534 shares.
40. Movements in equity capital
Movements in the fiscal year were as follows:
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(EUR)
INITIAL BALANCE
Capital
INCREASE
DECREASES
FINAL BALANCE
1.000.000
1.000.000
Legal reserve
103.843
3.894
107.737
Free reserves
829.182
73.986
903.168
77.880
112.728
77.880
112.728
2.010.905
190.608
77.880
2.123.633
Profit and loss for the year
Increases in the fiscal year were in line with the proposal for the distribution of net profit
for 2006 submitted by the Board of Directors and approved at the Shareholders’
Meeting.
45. Financial statements
(EUR)
COSTS AND LOSSES
2007
PROFITS AND GAINS
2006
Interest paid
55
173
Provisions for cash
investments
12
991
294
3.749
3.790
2.081
54.349
33.328
58.500
40.322
Losses from the sale of cash
investments
Other financial costs and
losses
Financial results for the year
Total
Interest received
2007
2006
56.023
40.225
Gains from the sale of cash
investments
2.477
98
Total
58.500
40.322
46. Extraordinary results
(EUR)
COSTS AND LOSSES
Losses in fixed assets
Fines and penalties
Increases in amortisation and
provisions
Corrections to previous fiscal
years
Other extraordinary costs and
Losses
Extraordinary results
Total
2007
PROFITS AND GAINS
2006
0
Gains in fixed assets
672
1.093
0
0
53
3.842
Corrections to previous fiscal
years
0
506
Other extraordinary profits and
gains
4
0
1.872
5.440
Decreases in amortisation and
provisions
5.185
25
12
-4.010
5.428
1.872
5.440
2006
1.815
Benefits of contractual penalties
0
2007
Total
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48. Other relevant information
• Bank deposits
This item, as at 31 of December, is broken down as follows:
(EUR)
2007
2006
Demand deposits
Time deposits
29.903
123.619
946.000
103.000
975.903
226.619
• General government and other public bodies
Value Added Tax - VAT
VAT recorded in the Managing Company’s accounts relates to a self-liquidation
resulting from services provided by a non-resident body.
Income taxes – corporate income tax
Taxes on profit are calculated on the basis of the value forecast to be paid, at the rates
prevailing on the balance sheet date, being recorded under “General government and
other public bodies”.
In accordance with the legislation in force, during a four-year period the tax
administration may check the values mentioned above. This may lead to corrections
to the tax base and to additional settlements with regard to the fiscal years from 2004
up to and including 2007. The Board of Directors assumes that any additional
settlement will have no significant impact on the financial statements.
•
Supply of services
The supply of services refers exclusively to management fees, whose amount is set on
an annual basis according to the management agreement signed between the Banco
de Portugal and the Managing Company.
Management fees, in 2007, were set at €3,489,279.00, the some value as the year
before..
•
Supplementary income
This income results from a sub-lease contract.
•
Staff costs
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This item includes training costs directly borne by the Managing Company and costs
with staff members, who are covered by a secondment agreement concluded with the
Banco de Portugal.
• Accruals and deferrals
This item includes payments made during the fiscal year, regarding costs for the
following year, namely costs of IT licenses.
• Suspense accounts
Pursuant to paragraph 3.1 of Regulatory Norm No 12/95-R of 6 July of Instituto de
Seguros de Portugal – ISP, the accounts of the Pension Fund are recorded under class
0 - Off-balance-sheet accounts, in the following main accounts:
01 - Pension Fund of the Banco de Portugal; and
02 - Management of the Pension Fund of the Banco de Portugal.
As at 31 December 2007, these accounts were balanced and amounted to respectively
plus and minus €1,183,275,079.
Certified auditor
Board of Directors
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Legal certification of accounts
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 43
ERNST & YOUNG
Ernst & Young Audit & Associados-SROC, S.A.
Edifício República
Avenida da República, 90 – 6.º
1600-206 Lisboa
Portugal
Tel.: (351) 217 912 000
Fax: (351) 217 957 586
CERTIFICATION OF ACCOUNTS
Introduction
1.
We have audited the financial statements of SOCIEDADE GESTORA DO FUNDO DE PENSÕES
DO BANCO DE PORTUGAL, S.A. (Banco de Portugal’s Pension Fund Managing Company),
which comprise the balance sheet as at 31 December 2007 (showing a total amount of €2,627,433 and
total equity capital to the amount of €2,123,633, including a net result of €112,728) and the Profit and
Loss Account for the year then ended, as well as the corresponding Annex.
Responsibility
2.
The Board of Directors of Sociedade Gestora do Fundo de Pensões do Banco de Portugal is
responsible for the preparation and fair presentation of the financial statements, results and turnover.
This responsibility also includes applying appropriate accounting policies and criteria and maintaining
an adequate internal control system.
3.
Our responsibility is to express an independent professional opinion based on our audit to those
financial statements.
Scope
4.
We conducted our audit in accordance with the Examination/Audit Technical Rules and Guidelines of
Ordem dos Revisores Oficiais de Contas (Portuguese Statutory Auditor Institute), which require that
we plan and perform our audit to obtain reasonable assurance that the financial statements are free
from material misstatement. For this, the audit included:
•
examining, on a test basis, evidence about the amounts and disclosures in the financial statements and
an assessment of estimates used in their preparation, which were based on judgements and criteria
defined by the Board of Directors of Sociedade Gestora do Fundo de Pensões do Banco de Portugal;
assessing whether the accounting policies adopted and their disclosure are appropriate in the
circumstances;
assessing whether accounts are prepared on a going concern basis; and
evaluating the overall adequacy of the presentation of information in the financial statements.
•
•
•
5. Our audit also assessed the concordance between the financial information included in the management
report and financial statements.
6. We believe that our audit provides a sufficient basis for our opinion.
Opinion
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 44
7.
In our opinion, the financial statements give a true and fair view in all material respects of the financial
position of Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. as at 31 December
2007 and of its profit, results and turnover for the year then ended, in accordance with the accounting
principles generally accepted in Portugal.
Lisbon, 19 March 2008
ERNST & YOUNG AUDIT & ASSOCIADOS, SROC, S.A.
Sociedade de Revisores Oficiais de Contas (n.º 178)
Represented by:
Ana Rosa Ribeiro Salcedas Monte Pinto (ROC n.º 1230)
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 45
Pension Fund of the Banco de Portugal
Financial position and income and expenses account
Notes to the financial position and the income and expenses account
Certification of accounts
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 46
Financial position - FPBP
(EUR)
Fund investments
Note
2007
2006
Land and buildings
4
70.658.614
89.429.554
Buildings under negociation
4
20.815.000
0
Credit securities
5
1.066.194.584
1.099.555.657
Cash and bank deposits
6
31.364.861
9.977.986
General debtors and creditors
7
-15.811.058
-356.474
Accruals and deferrals
8
10.053.078
9.943.312
1.183.275.079
1.208.550.035
(See annexed Notes)
Income and expenses account - FPBP
(EUR)
Fund value increases
Nota
2007
2006
Contributions
10
22.677.305
85.781.423
Income
11
32.825.487
31.644.477
Capital gains
12
62.988.657
82.774.434
69.917
1.812.292
118.561.366
202.012.626
Other revenue
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 47
(EUR)
Fund value
Note
Initial assets
2007
2006
4.987.979
4.987.979
1.203.562.056
1.176.538.684
-25.274.956
27.023.372
1.183.275.079
1.208.550.035
Accumulated profit and loss and
contributions
Previous fiscal years
For the year
9
(See annexed Notes)
(EUR)
Fund value decreases
Note
Pensions and payments
13
Mediation fees
Taxes
2007
2006
48.768.831
47.460.402
0
0
3.834
26.619
Capital losses
12
93.009.294
125.904.961
Other expenses
14
2.054.363
1.597.273
143.836.322
174.989.255
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Notes to the financial position and the income and expenses account
1.
Setting-up and business activity
The Pension Fund of the Banco de Portugal (the ‘Pension Fund’) was set up by the
Banco de Portugal, in its capacity as founder associate, through a public deed signed
on 15 September 1988 in the 9th Notarial Office of Lisbon. The second party to the
Deed of Constitution was Sociedade Gestora do Fundo de Pensões do Banco de
Portugal (Banco de Portugal's Pension Fund Managing Company) in its capacity as
managing company, granted through the previous signature of a Pension Fund
management agreement with the Banco de Portugal.
The Pension Fund is composed of autonomous assets exclusively earmarked for the
fulfilment of Banco de Portugal’s commitment to pay retirement, disability and
survivors pensions, as well as charges for post-retirement contributions to SAMS
(social health assistance service for bank employees). It is a closed fund, operating a
defined benefit scheme and plays the role of first pillar of social protection.
2.
Financial statements
The accounts in the annex were prepared in accordance with the accounting records of
Sociedade Gestora do Fundo de Pensões do Banco de Portugal.
These accounts summarise the Pension Fund’s transactions and net assets. They do not
take into account liabilities relating to pensions or other benefits payable in the future.
The Pension Fund’s actuarial position, including these liabilities, is shown in the
management report. The financial statements should be read in conjunction with this
report (see 4.4 - Actuarial appraisal).
3.
Accounting principles
a)
General
The financial statements were prepared in line with the accounting principles
generally accepted in Portugal and in accordance with the rules of the Instituto de
Seguros de Portugal – ISP.
The accounts were prepared under the historical cost convention (modified to
include the revaluation of investment in land, buildings and credit securities) and
on the basis of the going concern principle, in conformity with the basic
accounting principles of consistency, prudence and accruals.
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b)
Land and buildings
Land and buildings are initially recognised at acquisition cost plus acquisition
expenses. Subsequently, this value is reassessed by independent entities,
according to the valuation regime laid down in Regulatory Norm No 9/2007 of
28 June 2007 of Instituto de Seguros de Portugal – ISP.
Unrealised capital gains and losses arising from the revaluation of real estate are
recorded in the income and expenses account, in the fiscal year in which the
revaluation is made.
c)
Credit securities
Portfolio financial investments as at 31 December 2007 are valued at fair value
in accordance with Regulatory Norm No 9/2007 of 28 June 2007 of Instituto de
Seguros de Portugal – ISP. In fulfilment of this Norm, an economic
methodology adjusted to the type of financial asset in question is applied to
quoted securities not valued at fair value.
The difference between the securities’ fair value and the respective acquisition
cost is recorded under “Capital gains and losses” of the income and expenses
account. The difference between the proceeds from the sale of securities and the
value for which they were recognised is also recorded under the same items.
d)
Contributions
Upon actual receipt, Banco de Portugal’s contributions to the Pension Fund are
recorded under “Contributions to the income and expenses account” (see Note
10).
e)
Income
Income from real estate rents and from securities is recorded in the period to
which it refers, except for share dividends, which are only recognised upon
actual receipt.
f)
Pensions
Pensions are paid to the beneficiaries by the Banco de Portugal, which is
subsequently repaid in full by the Pension Fund, on a monthly basis (see Note
13).
g)
Fees
Fees are recorded in the respective income and expenses account item in the
period to which they refer, regardless of their date of payment.
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Outstanding fees that have not been settled yet are recorded as a counterpart to
the “Accrued expenses” item. Fees paid in advance are recorded under the
“Accrued expenses” item.
h)
Derivatives
Foreign exchange forward contracts, conducted with the purpose of hedging
foreign exchange risk in the securities portfolio, are revalued at the foreign
exchange rates corresponding to the time to maturity. These rates are implied in
the forward exchange rate (average bid/ask price) released by internationally
recognised financial information systems at the revaluation date. The differences
between the equivalent in euro to the forward revaluation rates applied and the
equivalent in euro to the rates agreed represent the revaluations’ income or cost,
which is recorded under Pension Fund value increases or decreases respectively,
namely under “Capital gains or losses”, against “Accruals and deferrals” .
i)
Applicable taxation regime
Pension funds are exempt from the payment of corporate income tax and
municipal real estate tax (Imposto Municipal sobre Imóveis), in accordance with
the Tax Incentives Statute.
4.
Land and buildings
The acquisition value includes the base price, legal charges and other expenses. The
adjustment value corresponds to potential capital gains in the fiscal year 2007, to the
amount of €6,205,362, and in previous years (capital gains of €17,233,976).
Assessments should be made every three years, or earlier, when there are materially
relevant mismatches between the building’s net value and its market value.
The value that is registered in real estate trading, € 20,815,000, was established on the
basis of the contract of promise for the purchase and sale of a building and was
included the predictable legal charges for the purpose of clearance of their value.
Part of the substantial gains recorded in 2007, were held in early 2008 with the deed of
sale of a property. Thus, the amount of € 4,204,900 counted as capital gains made
corresponds only to buildings whose deed of sale occurred in the present year.
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5.
Credit securities
(EUR)
2007
Acquisition
value
2006
Market
value
Adjustments
Market
value
Variable income securities
Shares
0
0
0
149.879.324
13.285.735
163.165.059
152.644.282
Equity
Mutual fund units
Fixed income securities - Bonds
Government
973.881.367
-81.549.671
892.331.696
941.155.344
Of other supranational issuers
4.997.357
-16.563
4.980.794
0
Of other issuers
4.720.623
996.412
5.717.035
5.756.031
1.133.478.671
-67.284.087
1.066.194.584
1.099.555.657
Adjustment values correspond to potential capital gains or losses calculated as the
difference between the market value and the historical acquisition value. In 2007 the
net value of potential capital gains and losses recorded in the income and expenses
account amounted to -39.613.360 € (see Note 12 b).
6.
Cash and bank deposits
This item, as at 31 of December, is broken down as follows:
(EUR)
2007
Cash
Demand deposits
Time deposits
2006
719
719
1.464.142
477.267
29.900.000
9.500.000
31.364.861
9.977.986
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7.
General debtors and creditors
This item is broken down as follows:
(EUR)
2007
2006
Current assets
Brokers and financial intermediaries
Taxes (a)
Lease-holders (d)
Derivatives (e)
Other
0
17.529
450
104.618
120.895
325.899
3.094.098
0
693
693
3.216.136
448.739
31.647
0
346.697
176.782
18.534.938
315.939
113.912
113.912
0
198.581
19.027.194
805.214
-15.811.058
-356.475
Current liabilities
Brokers and financial intermediaries
Taxes
Creditors - Buildings (d)
Other
Derivatives (e)
Net value
(a)
Taxes - VAT
This item essentially comprises VAT paid in the reconversion works of Edifício
Libersil, to be recorded in subsequent periods. In 2006 the tax administration
repaid the requested amount.
(b)
Creditors - Buildings - Lease-holders/Provisions for non-performing loans
This item comprises €301,644 regarding fully provisioned non-performing debts
of Edifício Libersil’s lease-holders.
The 2007 financial year also includes figures on the transaction of a property,
whose deed occurred at the beginning of 2008.
(c)
Derivatives
The derivatives utilisation policy was exclusively based on the use of foreign
exchange forward contracts to hedge foreign exchange risk in exchange traded
funds denominated in four currencies: pound sterling, US dollar, Japanese yen
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and Swiss franc, to the notional amounts of GBP 3,323,000, USD 36,206,500,
JPY 873,300,000 and CHF 17,298,000 respectively.
8.
Accruals and deferrals
This item is broken down as follows:
(EUR)
2007
2006
9.990.444
9.910.050
62.305
32.933
329
329
10.053.078
9.943.312
Interest receivable
From credit securities
From time deposits
Other
9.
Pension Fund value
Changes in the Pension Fund value were as follows:
(em Euros)
2007
2006
Pension Fund value as at 31 December
1.208.550.035
1.208.550.035
Increases due to contributions (Note 10)
22.677.305
Decreases due to payments (Note 13)
48.768.831
Financial profit and loss
816.570
-25.274.956
Pension Fund value as at 31 December
(A)
1.183.275.079
By reference:
Past service liabilities
(B)
Actuarial surplus
(A-B)
1.226.238.773
1.175.298.862
7.976.217
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10.
Contributions
Current contributions include, in addition to the component paid by the Banco de
Portugal, contributions from its staff, under the conditions set out by their plans.
During the financial year 2007 there was no need for extraordinary contribution to
cover shortfalls in assets of the Pension Fund or due to change of assumptions.
11.
Income
This item represents income arising from:
(EUR)
2007
Land and buildings
2006
6.905.292
5.980.935
0
219
2.937.395
3.328.926
22.371.928
21.124.667
66.241
483.627
129.016
415.269
25.504.580
25.352.708
53.861
53.641
361.754
257.193
415.615
310.834
32.825.487
31.644.477
Credit securities
Shares
Real-estate based and mutual fund units
Bonds
Government
Of other public issuers
Of other issuers
Demand deposits
Time deposits
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12.
Capital gains and losses
Capital gains and losses for the year are broken down as follows:
(EUR)
2007
2006
Potential capital gains and losses
Land and buildings
Capital gains
7.785.546
3.819.900
1.580.184
0
6.205.362
3.819.900
Capital gains
6.549.350
26.227.991
Capital losses
46.162.710
65.850.486
-39.613.360
-39.622.495
1.140
-
Capital losses
(i)
Credit securities
Other
Capital gains
Capital losses
5.512
-
-4.372
-
4.204.900
0
0
0
4.204.900
0
Mais valias
1.057.603
14.244.196
Menos valias
6.545.217
24.346.013
-5.487.614
-10.101.816
Capital gains
42.723.577
37.984.060
Capital losses
38.150.801
35.092.297
4.572.776
2.891.763
Capital gains
666.541
498.287
Capital losses
564.870
616.165
101.671
-117.879
Total capital gains
62.988.657
82.774.434
Total capital losses
93.009.294
125.904.961
-30.020.637
-43.130.527
Realised capital gains and losses
Land and buildings
Capital gains
Capital losses
Credit securities
Derivatives
Other
Net value
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(i)
13.
In the course of 2007 as part of a process of alienation, it was necessary to
make adjustments, positive and negative to the value of a property, which
resulted in overall terms, an added value potential.
Pensions and payments
This item is broken down as follows:
(EUR)
2007
Retirement pensions
44.270.135
42.805.616
669.274
1.335.026
2.910.124
2.824.575
313.026
372.676
48.162.560
47.337.893
515.861
38.562
90.410
83.948
48.768.831
47.460.402
Capital payable
Charges with the payment of pensions
Death grant
SubTotal
Repayments
Transfer of rights
Total
14.
2006
Other expenses
This item is broken down as follows:
(EUR)
2007
Financial expenses- a)
Expenses on buildings - b)
Extraordinary expenses
Other expenses
a)
2006
125.666
447.905
1.620.005
725.231
308.691
415.261
1
8.876
2.054.363
1.597.273
Financial expenses
This item covers expenses borne by the Pension Fund, regarding the global
custody service of financial assets.
b)
Expenses on buildings
This item covers normal costs with the management and maintenance of
buildings.
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15.
Tax liabilities
The Banco de Portugal assumes tax liabilities, under the provisions of the agency
agreement signed with the Managing Company on 17 October 2006. Pursuant to it, the
Banco de Portugal shall:
a)
pay retirement and survivors pensions to the respective beneficiaries on behalf
and for the account of the Managing Company;
b)
withhold at source the contributions and taxes due for subsequent delivery to the
competent authorities, and meet the corresponding tax reporting obligations;
c)
settle through an offsetting procedure the amounts paid and the contributions due
to the Pension Fund related to the Bank’s employees, under the terms of subparagraph a).
The Banco de Portugal has complied and will continue to comply with the agreement
referred to as long as it remains in force. Within the scope of this agreement the Bank
will assume all inherent responsibilities.
17.
Contingent liabilities
a)
Edifício Libersil
Judicial proceedings continue with regard to four actions brought before Court
by four former shopkeepers against the Managing Company. According to the
lawyers’ view, it is unlikely that the Company will be sentenced.
b)
Edifício Armazéns de Alverca
At the end of 2006, the provision set up for this purpose was cancelled, after the
Lisbon Court of Appeal dismissed the claim for damages brought by the
complainant.
On January 2007, following a judgment of the Supreme Court of Lisbon, which
confirmed the previous decision, the proceeding was brought to an end given that
it was not possible to appeal the judgment.
d)
Future subscription of “Office Park Expo” real-estate based fund units
The Pension Fund subscribed investment units in the real estate fund “Office
Park Expo”, to the total amount of €44,999,999.
By decision of investors, under the terms of the Partnership Agreement, no more
contributions of capital will be made.
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Certification of accounts
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Sociedade Gestora do Fundo de Pensões do Banco de Portugal, S.A. | 59
ERNST & YOUNG
Ernst & Young Audit & Associados-SROC, S.A.
Edifício República
Avenida da República, 90 – 6.º
1600-206 Lisboa
Portugal
Tel.: (351) 217 912 000
Fax: (351) 217 957 586
CERTIFICATION OF ACCOUNTS
Introduction
5.
We have audited the financial statements of FUNDO DE PENSÕES DO BANCO DE PORTUGAL,
S.A. (Fund), which comprise the balance sheet as at 31 December 2007 showing total investments of
€1,183,275,079 and a fund value to the same amount, including the loss for the year, to an amount of
€25,274,956 and the Profit and Loss Account for the year then ended, as well as the corresponding
Annex.
Responsibility
6.
The Board of Directors of Sociedade Gestora do Fundo de Pensões do Banco de Portugal is
responsible for the preparation and fair presentation of the financial statements, results and turnover.
This responsibility also includes applying appropriate accounting policies and criteria and maintaining
an adequate internal control system.
7.
Our responsibility is to express an independent professional opinion based on our audit to those
financial statements.
Scope
8.
We conducted our audit in accordance with the Examination/Audit Technical Rules and Guidelines of
Ordem dos Revisores Oficiais de Contas (Portuguese Statutory Auditor Institute), which require that
we plan and perform our audit to obtain reasonable assurance that the financial statements are free
from material misstatement. For this, the audit included:
•
examining, on a test basis, evidence about the amounts and disclosures in the financial statements and
an assessment of estimates used in their preparation, which were based on judgements and criteria
defined by the Board of Directors of Sociedade Gestora do Fundo de Pensões do Banco de Portugal;
assessing whether the accounting policies adopted and their disclosure are appropriate in the
circumstances;
assessing whether accounts are prepared on a going concern basis; and
evaluating the overall adequacy of the presentation of information in the financial statements.
•
•
•
5. Our audit also assessed the concordance between the financial information included in the management
report and financial statements.
6. We believe that our audit provides a sufficient basis for our opinion.
Opinion
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8.
In our opinion, the financial statements give a true and fair view in all material respects of the financial
position of Fundo de Pensões do Banco de Portugal, S.A. as at 31 December 2007 and of its profit,
results and turnover for the year then ended, in accordance with the accounting principles generally
accepted in Portugal.
Lisbon, 19 March 2008
ERNST & YOUNG AUDIT & ASSOCIADOS, SROC, S.A.
Sociedade de Revisores Oficiais de Contas (n.º 178)
Represented by:
Ana Rosa Ribeiro Salcedas Monte Pinto (ROC n.º 1230)
Report and Accounts | 20 0 7