INTERIM REPORT

INTERIM REPORT 1ST HALF 2017

CONTENTS MANAGEMENT’S REVIEW

STATEMENT AND REPORTS

CONTACTS

Financial summary

Statement by the Board of

Jens Lundager, CEO and Managing Director

for KommuneKredit

3

Directors and Management

KommuneKredit in brief

4

The independent auditor’s

6

report on review of the

CEO Letter Financial review

10

INTERIM FINANCIAL STATEMENTS Statement of financial position

13

Statement of changes to equity

14

Statement of cash flows

14

Johnny Munk, Managing Director Morten Søtofte, Chief Financial and Risk Officer

interim financial statements

21

Report by the auditor appointed

For questions regarding issuances please

by the Ministry of Economic

contact: Eske Hansen, Head of Funding

Affairs and the Interior

Statement of comprehensive income 13

20

22

and Treasury Address:

CASES

KommuneKredit

Sankt Annæ Square

8

The Green Committee

12

Notes15

Kultorvet 16 DK-1175 Copenhagen K Denmark Tel. +45 33 11 15 12 [email protected] www.kommunekredit.dk CVR no. 22 12 86 12 Announcement date: 25 August 2017 Cover photo: Sankt Annæ Square, Copenhagen

KOMMUNEKREDIT

2

INTERIM REPORT 2017

MANAGEMENT’S REVIEW

FINANCIAL SUMMARY FOR KOMMUNEKREDIT NET NEW LENDING AND EQUITY RATIO 2013-2017 FORECAST DKKm

%

10,000

5

8,000

4

6,000

3

4,000

2

2,000

1

0

0 2013

2014

2015

2016

2017P

Net new lending Equity ratio, pct.

NET INTEREST INCOME AND PROFIT BEFORE VALUE ADJUSTMENT 2013-2017 FORECAST DKKm 1,000 800 600 400 200 0 2013

2014

2015

2016

2017P

Net interest income Profit before value adjustment

1st Half DKKm 2017

1st Half 1st Half Year 2017 2016 2016

EUR DKK DKK DKK KEY FIGURES Net interest income 46 340 361 656 Administrative expenses -8 -58 -54 -106 Profit before value adjustments 38 282 307 550 Value adjustment of financial instruments 8 63 88 89 Tax on profit for the period -10 -76 -87 -141 Comprehensive income for the period 36 269 308 497 Lending and lease receivables 23,156 172,271 166,257 168,589 Portfolio of securities 5,740 42,706 35,690 34,049 Total assets 30,943 230,199 223,599 223,938 Debt securities issued 28,276 210,357 204,369 202,642 Equity 956 7,113 6,655 6,844 ACTIVITIES DURING THE PERIOD Lending and lease receivables, net addition at nominal value (net new lending) 664 4,939 5,090 8,998 Lending and lease receivables, gross addition at nominal value 2,555 19,008 16,670 31,113 Debt securities issued, gross addition at nominal value 7,358 54,741 52,090 85,963 CAPITAL STRUCTURE Total risk exposure (REA) 1,304 9,699 7,582 7,393 Common Equity Tier 1 (CET1) capital 956 7,113 6,655 6,844 Capital base 886 6,590 6,450 6,324 Capital ratio* N/A 68 85 86 Equity ratio, pct. N/A 3.1 3.0 3.1 SELECTED FINANCIAL RATIOS Loss on lending and lease receivables 0 0 0 0 Administrative expenses/assets, pct. N/A 0.03% 0.02% 0.05% Net interest income/assets, pct. N/A 0.15% 0.16% 0.29% Liquidity resources, pct. N/A 24% 18% 16% Number of full-time employees N/A 69 67 66 * = Capital ratio for 1st half of 2017 has been adjusted for risk-weight in accordance with the principles of CRR/CRD IV. Key figures and financial ratios are calculated in accordance with The Danish Finance Society’s “Recommendations and Financial Ratios 2015”. Exchange rate at 30.06.2017, EUR 100 = DKK 743,95. The format is unchanged from the annual report for 2016.

KOMMUNEKREDIT

3

INTERIM REPORT 2017

KOMMUNEKREDIT IN BRIEF

KOMMUNEKREDIT IS STEADY AND STABLE KommuneKredit plays in important part in society by

Danish local authorities. KommuneKredit is a steady

creating financial latitude for the Danish local commu-

and stable business partner.

nities.

The steadiness is founded on KommuneKredit’s struc-

By mid-2017 total lending amounted to DKK 172 billion,

ture as an association where all Danish local authorities

and profit for the period before value adjustments was

are jointly and severally liable for KommuneKredit’s

DKK 282 million.

AAA/ Aaa

R

M DEBT ER -T

SH O

Since 1899, KommuneKredit has provided funding to

LON G

HIGHEST INTERNATIONAL CREDIT RATING RM DEBT TE T-

A-1+/ P-1

KommuneKredit is rated by Standard & Poors and Moody’s. The outlook is stable.

liabilities and on its low risk tolerance, prudent risk management and strong financial position.

The equity ratio at the end of June 2017 corresponded to the Board of Directors’ objective of at least 3 pct.

KommuneKredit’s stability is demonstrated by the

KommuneKredit has a capital ratio of 68 and a strong

fact that it has been acting as a link between clients’

liquidity position.

RISK WEIGHT

KommuneKredit is subject to Act no. 383 of 3 May 2006 on KommuneKredit and is under supervision by the

KommuneKredit has obtained the highest rating from

HQLA

Level 1 assets

financing requirements and the investors for more than a hundred years.

R: LC

Ministry of Economic Affairs and the Interior.

both Standard & Poor’s and Moody’s in line with the rating for the Danish government. Therefore, Kom-

The association has 69 employees and is based in

muneKredit can finance itself at low interest rates and

Copenhagen.

on-lend to its clients at a modest margin. The association does not need to make a profit.

KOMMUNEKREDIT

4

INTERIM REPORT 2017

KommuneKredit’s issues are in the highest liquidity category in the LCR delegated act.

when investing in KommuneKredit’s issuances.

CAPITAL RATIO

EQUITY RATIO

JOINT AND SEVERAL LIABILITY FOR ALL OF KOMMUNEKREDIT’S LIABILITIES

JOINT AND SEVERAL LIABILITY KommuneKredit’s members are Denmark’s 98 municipalities and 5 regions, and the association thus represents the entire Danish population. The members are jointly and severally liable for all of KommuneKredit’s liabilities. That is the members’ musketeer oath where everyone is obligated – one for all, all for one.

KOMMUNEKREDIT IS A LINK KommuneKredit acts as a steady and stable link between local lending and global funding.

KOMMUNEKREDIT ›

5

INTERIM REPORT 2017

FUNDING OF LENDING KommuneKredit’s lending is financed by the issue of securities in the Danish and international capital markets.

CEO LETTER

STABLE FINANCIAL DEVELOPMENT Earnings and financial ratios show satisfactory development. The association’s focus is on continuously adapting to varying conditions, so that we remain cost-effective. KommuneKredit has continued the stable financial de-

Varde Kloak og Spildevand A/S has, for example, raised

velopment in the first half of 2017. Earnings have been

a loan of DKK 18 million with a 40-year term to matu-

satisfactory and consistent with expectations for the year,

rity in KommuneKredit. The loan finances separation

while expenses have risen slightly due to implementation

of existing sewers into two pipes, so that rainwater is

of the IT-strategy. The equity ratio at the end of June was

drained separately from waste water. Torrential rain has

just over 3 pct. and thus in compliance with the target.

thus far put pressure on the sewerage systems. For the joint sewerage systems this has meant that many of the

KommuneKredit’s total lending continues to grow and

pipes were too small, creating a risk that they couldn’t

measured at fair value amounted to DKK 172 billion at

drain the water away quickly enough. By keeping the

the end of June 2017 against DKK 169 billion at the end

waste water in a separate system, from source to sew-

of June 2016. In the first half of the year loans were

age treatment plant, the health hazard associated with

granted to 67 of the 98 Danish municipalities. The loans

floods of mixed rainwater and waste water is reduced.

finance a broad variety of purposes including energy optimisation, climate adaptation and housing for the

FOCUS ON GREEN INVESTMENTS

elderly. For the most part new lending to the utilities

IN THE LOCAL COMMUNITIES

sector funded water and waste water distribution as

KommuneKredit wants to highlight the improvements

well as investments in district heating.

to environmental and climate conditions that are achieved through investing in the Danish local com-

KommuneKredit means economics of scale for munici-

munities. This is done by issuing green bonds, the

palities and regions, who, through their own joint credit

proceeds of which are used for selected environment-

association, may raise loans and receive professional,

and climate-related projects in water and waste water,

impartial advice on relevant regulation and financing.

district heating, energy optimisation and environmen-

KommuneKredit does not have to make a profit, and so

tally sound public transportation. KommuneKredit has

this is done on equal terms for all borrowers regardless

appointed a green committee to ensure that the funded

of their zip code.

projects meet specific green guidelines. KOMMUNEKREDIT

6

INTERIM REPORT 2017

CEO LETTER The first green bond issuance, in the amount of EUR

Furthermore, in their 2025-plan the Government main-

has been based on the good, Danish model – when we

500 million, was carried out in May 2017. The proceeds

tains their proposed amendment to the utility strategy

unite in an association with joint and several liability, we

have been distributed to more than 100 green projects

with the purpose of making the Danish utility sector

become stronger as a community. We concentrate on a

in the Danish local communities including water purifi-

more effective. The proposal includes a principle on

continuous adaptation of our business to the changing

cation in Svendborg and district heating on Bornholm.

making utility companies subject to competition, which

conditions, so that we may continue to be focused on

may affect KommuneKredit’s ability to continue to offer

our clients, adaptable and cost-effective regardless of

KOMMUNEKREDIT ADAPTS TO VARYING CONDITIONS

funding. It will, among other things, be dependent on

the size of our lending.

On 21 June 2017, the Government announced in a press

the future organisation and ownership structure in the

release, that it would be introducing a law reform which

utility companies. There may also be a spill-over effect

NO LOSS ON LENDING FOR 118 YEARS

makes it possible to use government loans to finance

across the country, so that the privatisation of one

The municipal and regional lending and guarantees are

social housing – state aid developments and renovations

company in Copenhagen causes companies in other

strictly regulated by Parliament and by the Ministry

subsidized by Landsbyggefonden. Today these devel-

parts of the country to become subject to competition –

of Economic Affairs and the Interior. The same applies

opments are financed through subsidized mortgage

thus losing the chance to receive cost-effective funding

to KommuneKredit’s business and in 118 years Kom-

loans and through loans from KommuneKredit. Per the

through KommuneKredit.

muneKredit has not lost one single Danish krone on

Government, the social housing sector holds subsidized

lending. The joint and several liability has never been

loans in the amount of DKK 180 billion. Of this Kom-

Based on population size, KommuneKredit’s loans to

muneKredit has total lending of approx. DKK 25 billion to

the utility sector have the highest impact in rural areas.

the financing of subsidized social housing for the elderly.

It is here that getting private funding can be expect-

The bonds KommuneKredit issues to fund our lending

The proposal to use government loans for social housing

ed to be the most difficult. One example is Marstal

are thus very safe and carry a very low interest rate.

will be part of a future proposal to amend the Act on

Fjernvarme (district heating), which was most recently

The people who buy our bonds do not expect a high

Social Housing (Almenboligloven), which is expected to

expanded in 2012 for DKK 130 million. This included

yield but rather the certainty of getting their invest-

be introduced in Parliament in the Fall. Assuming the

EU-grants of DKK 35 million. The rest was borrowed in

ment back.

Government’s proposal passes, there will be a 10-year

KommuneKredit against a guarantee from the Mu-

period of gradual introduction commencing in 2018.

nicipality of Ærø. The expansion meant that Marstal

invoked – KommuneKredit is low risk.

Copenhagen, 25 August 2017

Fjernvarme is 100% fossil free with 55% of the annual KommuneKredit finances housing for the elderly

heat production coming from the sun. At Marstal Fjern-

through the issuance of bonds, with a mortgage credit

varme they doubt that the investment would have been

similar nature, on Nasdaq Copenhagen, and the passing

realised without the opportunity to borrow through

of the proposal will only affect bond issuances in Den-

KommuneKredit.

mark and not the extent of KommuneKredit’s international funding. The proposal is not expected to materi-

KommuneKredit has no opinion on the future organi-

ally affect KommuneKredit’s key figures, either.

sation of the utility sector. Since 1899, KommuneKredit KOMMUNEKREDIT

7

INTERIM REPORT 2017

Jens Lundager CEO

CASE: SANKT ANNÆ SQUARE

A SUSTAINABLE URBAN ENVIRONMENT IN THE CENTRE OF COPENHAGEN KommuneKredit’s funding contributes to climate proofing of Sankt Annæ Square.

KOMMUNEKREDIT

8

INTERIM REPORT 2017

CASE: SANKT ANNÆ SQUARE

FUNDING OF CLOUDBURST- AND CLIMATE PROJECT ON SANKT ANNÆ SQUARE The Sankt Annæ Project includes renovation, traffic calming and climate protection of both Sankt Annæ Square, Kvæsthusgade and the sunny side of Nyhavn from Toldbodgade to the harbour. The pier, Kvæsthusmolen, has also been renovated and a subterranean car park has been established. The project, opened in 2016, is backed by Realdania, the

which a committee finds to be particularly beautiful and

Municipality of Copenhagen and HOFOR. Furthermore,

contributing to the Copenhagen Experience.

a number of private foundations have subsidized the project.

In 2016, Sankt Annæ Square was among the seven developments that received the award for an environment

KommuneKredit has granted loans to HOFOR and the

with an especially positive contribution to Copenhagen. It may not be something you notice at first glance,

Municipality of Copenhagen in connection with this project.

Sankt Annæ Square is an important example of the fact that a large investment in a community may serve

“The project truly lives up to HOFOR’s vision for creating

several purposes: protecting the city against floods and

sustainable cities. And we are pleased with the collab-

organising new and exciting urban spaces with the op-

oration with KommuneKredit which makes projects like

portunities to create urban life and happiness.

this possible”, says Carsten Cronqvist, Project Manager for Cloudburst Protection and Climate Adaptation at

FOR FURTHER INFORMATION

HOFOR.

Jette Moldrup, Head of Lending [email protected]

Each year since 1902 the Municipality of Copenhagen has honoured several developments and urban areas,

KOMMUNEKREDIT

9

INTERIM REPORT 2017

but the cloudburst-grating makes a huge difference when rainwater has to be drained away. A “river” in the middle of the square leads the water from the cloudburst into the harbour.

FINANCIAL REVIEW

A SATISFACTORY RESULT IN A PERIOD WITH MUCH FLUCTUATION The profit for the first half of 2017 was at a level with expectations for the period. The core business showed increased levels of activity for both lending and leasing, and the profit before value adjustments was DKK 282 million. The great shifts in the balance sheet for the period, due to fluctuations in currency rates, had no effect on profit as currency risk is hedged.

EARNINGS AND CAPITAL BASE Net interest income amounted to DKK 340 million for the first half of 2017, which is a decrease of DKK 21 million against the first half of 2016. KommuneKredit has adjusted lending prices throughout the period, to ensure a match with funding costs including derivatives. Thus, the lending margin is kept stable. Both interest income and interest expenses have dropped compared to the same period last year, primarily due to lower exchange rates for USD and GBP.

Administrative expenses rose to DKK 58 million for the first half of 2017 against DKK 54 million for the same period last year. The increase is primarily due to an increase in IT-expenses due to the IT-strategy, which is being implemented across several years. However, the annual administrative expenses continue to remain stable at 0.05 pct. of assets in recent years. Profit for the period before value adjustments decreased to DKK 282 million against DKK 307 million for the same period last year. The development is caused by the decrease in net interest income.

Comprehensive income for the period decreased to DKK 269 million compared to DKK 308 million for the same period last year. Comprehensive income for the period is transferred to equity, which now totals DKK 7,113 million. KommuneKredit’s equity consists in its entirety of retained earnings, meaning that the Common Equity Tier 1 (CET1) capital corresponds to equity. During this period the liquidity resources have been increased to extend the survival horizon beyond 180 days in an extremely stressful liquidity scenario. This has

When currency rates fluctuate, it causes great shifts in the balance sheet but no material effects on profit as currency risk is hedged” Morten Søtofte Chief Financial and Risk Officer

KOMMUNEKREDIT

10

INTERIM REPORT 2017

FINANCIAL REVIEW been achieved by increasing the portfolio of secured and liquid securities. The greater portfolio of securities has increased credit risk, which only corresponds partially to a decrease in the value of derivative financial instruments. The increased exposure together with adjusted risk-weighting in accordance with the principles of CRR/ CRD IV has increased the total risk exposure. The result is a capital ratio of 68 pct. against 86 pct. at the end of 2016. KommuneKredit remains highly capitalised with an equity ratio of 3.1 pct. and a strong cash position. LENDING AND LEASE RECEIVABLES Total lending including lease receivables increased by DKK 3 billion to DKK 172 billion in the first half of 2017. Net new lending for the period increased by DKK 5 billion, but is partially equalled by a negative value adjustment of DKK 2 billion on lending. The favourable net new lending is on a level with the first half of 2016 and reflects a continued rising activity in both lending and leasing. The negative value adjustment on lending is due to a slightly higher interest-rate level for Danish interest rates. 26 pct. of gross lending for the period was provided directly to municipalities and regions, while 74 pct. was provided to companies that solve municipal or regional tasks, including water and waste water distribution, the production and distribution of district heating, waste incineration plants with heat utilization etc. FUNDING AND INVESTMENTS Funding – debt to credit institutions and debt securities issued – have increased by DKK 6 billion since year-end 2016. The nominal value of funding has increased by DKK 7 billion, which is partially equalled by a negative value adjustment of DKK 1 billion.

The nominal increase in funding is due to several things including increased lending, the fact that more than half the annual funding target has been met due to advantageous funding terms and a more general wish to improve the cash position. Among other things the first half of the year saw 4 benchmark issues, two in USD and two in EUR. One of these benchmarks was a green bond, which finances more than 100 green lending projects.

ADMINISTRATIVE EXPENSES

23%

3%

17% 5%

The value adjustment on funding is primarily due to a decrease in rates for big funding currencies like USD and GBP. Total investments for the period – receivables from credit institutions as well as the portfolio of securities – have increased by DKK 12 billion to DKK 48 billion. This is primarily due to a nominal increase caused by the fact that the increase in funding more than equals the increase in lending. On the asset side the value of derivative financial instruments has decreased by DKK 10 billion. This is because the currency risk on issuances in foreign currency is fully hedged by derivatives. When currency rates fluctuate, as they have done in the first half of 2017, there are great shifts to the balance sheet but no material effects on profit since currency risk is hedged. EXPECTATIONS FOR 2017 The expectation is still an aggregate net new lending for 2017 of DKK 7 billion and net interest income of approximately DKK 650 million. Profit before value adjustment is still expected to be around DKK 550 million, with an equity ratio of at least 3 pct. depending on the influence of currency rates on assets and liabilities.

KOMMUNEKREDIT

11

INTERIM REPORT 2017

43%

3% 6%

Salaries and remuneration Pension contributions etc. Other staff costs Consultancy fees IT-costs Depreciation of property, plant and equipment and intangible assets Other administrative expenses

GROSS LENDING FOR THE PERIOD BY PURPOSE 7%

4% 26%

17%

Municipalities and regions Waste and heat supply Water and waste water Public transportation and harbours Other purposes

46%

Future expectations mentioned in the Interim Report, are naturally subject to uncertainty and may be affected by external factors. Thus, the actual development and the actual results may differ from the expectations of the Interim Report.

CASE: THE GREEN COMMITTEE

ISSUING GREEN BONDS FINANCES GREEN LENDING KommuneKredit has issued its inaugural green bond. And to ensure full transparency for the investors a green committee has been appointed to approve all green loans. The members of the green committee are (standing from

In May 2017 KommuneKredit issued EUR 500 million

Association as a benchmark for guidelines for green

green bonds for the first time – and with great suc-

bonds.

the left): Eske Hansen (chairman) and Hans-Martin Friis Møller (external member); (sitting from the left): Tabita Falk Thorsen and Carl Hellmers (external member). Also

cess. Proceeds from the bonds are used to finance environmental- and climate-related investments in the

Among other things, KommuneKredit’s guidelines for

Danish local communities within the areas of: water and

green bonds define the criteria that the green invest-

waste water, district heating, energy optimisation and

ments have to comply with. Generally, the investments

eco-friendly public transportation.

have to contribute to a reductions of CO₂ or a reduction

pictured are Guri Weihe and Lasse Vest, alternate and committee secretary respectively. The two external members, Hans-Martin Friis Møller, CEO of Kalundborg Forsyning A/S, and Carl Hellmers,

in energy consumption. As a starting point, it is also a

CEO of Fredericia Fjernvarme a.m.b.a. play a particularly

With this new type of green funding to municipalities,

requirement that energy usage is based on non-fossil

important role given their long experience with the utility

regions and utility companies KommuneKredit contrib-

resources.

sector and its green transition.

utes to highlighting the improvements of environmental and climate conditions, which are achieved by investing

A green committee consisting of four members has

in Danish local communities. The first bond issuance

been appointed and tasked with ensuring that the

covers 128 green projects, incl. water purification in

financed projects comply with these guidelines.

Svendborg and district heating on Bornholm. KommuneKredit has asked CICERO, a renowned, THE GREEN COMMITTEE EVALUATES THE PROJECTS

international and independent rating agency in the

In connection with the issue of green bonds, Kommune

environmental field, to advice and give an independent

Kredit has established a set of specific guidelines that

evaluation – an official approval so to speak – of Kom-

the underlying green investments must comply with.

muneKredit’s green bonds for the investors. Kommune

The guidelines are in accordance with the global prin-

Kredit has received the second highest rating from

ciples established by the International Capital Market

CICERO.

KK_AR16_designoplaeg.indd 22

KOMMUNEKREDIT

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INTERIM REPORT 2017

INTERIM FINANCIAL STATEMENTS 2017

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

Interest income 947 1,036

Assets

1st Half 1st Half DKKm Note 2017 2016

30 Jun 31 Dec DKKm Note 2017 2016

Interest expenses -607 -675

Receivables from credit institutions

Net interest income

340 361

Lending 2 166,071 162,990

2

5,387 1,592

Lease receivables 6,200 5,599

Administrative expenses -58 -54

Portfolio of securities

2

42,706 34,049

Profit before value adjustments of financial instruments

Derivative financial instruments

2, 4

9,684 19,557

282 307

Other assets 151 112

Value adjustments of financial instruments

Current tax assets 0 39

63 88

Profit before tax 345 395

Total assets 230,199 223,938

Tax on profit for the period

-76 -87

Profit for the period

269 308

Liabilities and equity

Liabilities

Other comprehensive income

Debt to credit institutions

1,234 2,475

Actuarial gains and losses

0 0

Debt securities issued

2

210,357 202,642

Total comprehensive income for the period

269 308


2, 4

10,502 10,992

Other liabilities 556 571

Appropriation:

Pension obligations 57 57

Transferred to equity 269 308

Deferred tax liabilities 380 357

Total 269 308

Total liabilities 223,086 217,094 Equity 7,113 6,844 Total liabilities and equity

KOMMUNEKREDIT

13

INTERIM REPORT 2017

230,199 223,938

INTERIM FINANCIAL STATEMENTS 2017

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASH FLOWS

Equity

Cash flows for the period

Equity at 1 January



6,844 6,347

Cash flows from operating activities

Transferred to equity for the period

Profit before tax 345 395

Profit for the period

Taxes paid -14 -29

269 308

Adjustment for non-cash operating items etc.

1 0

Other comprehensive income

Changes to other assets

-39 -35

Actuarial gains and losses

Changes to other liabilities

-16 -328

0 0

Tax on other comprehensive income

0 0

Changes to debts to credit institutions

-30 0

Other comprehensive income after tax

0 0

Changes to portfolio of securities

-8,657 -1,707

Changes to lending and derivative financial instruments

6,192 -9,495

Transferred to equity in total for the period

Changes to debt securities issued and derivative financial instruments

7,224 10,421

Total cash flows from operating activities

5,006 -778

Equity at 30 June

269 308 7,113 6,655

Total cash flows for the period

5,006 -778

Comprehensive income for the period is transferred to equity in accordance with Kommune Kredit’s articles of association.

Cash and cash equivalents at 1 January

380 818

Equity rose to DKK 7,113 million by mid-2017 from DKK 6,655 million by mid-2016. At the end of June 2017 equity was 3.1 pct. of assets, which is a minor increase compared to end of June 2016. Equity consists in its entirety of retained earnings.

Cash and cash equivalents at 30 June

5,386 40

In accordance with KommuneKredit’s legal framework, equity must be at least 1 pct. of total liabilities, corresponding to DKK 2.231 million. The long-term objective of the Board of Directors is for equity to be at least 3 pct. of assets, which is considered to be an adequate capital base to support the association’s activities.

KOMMUNEKREDIT

14

Cash and cash equivalents

5,387 40


-1 0

Debt to credit institutions with a term to maturity greater than 3 months

-1,233 0

Total receivables/debts to credit institutions

4,152 40

INTERIM REPORT 2017

NOTES

NOTE 1

NOTE 2

ACCOUNTING POLICIES

FAIR VALUE

IN GENERAL The Interim Report is prepared in accordance with IAS 34, ”Interim Financial Reporting”, as adopted by the EU.

are no material estimates associated with the valuation.

Accounting policies are, in all materiality, unchanged from the Annual Report for 2016. Reference is made to the Annual Report for a full description of accounting policies.

For financial instruments where valuation is only based on observable market data to a lesser degree, valuation is affected by estimates. This is the case for certain securities for which there is no active market, for example.

For financial instruments with quoted prices in an active market, or for which valuation is based on generally accepted valuation methods with observable market data, there

The applied methods and principles for determining accounting estimates as regards fair value of financial instruments are described in full in the Annual Report for 2016.

In accordance with IFRS 13, financial instruments measured at fair value are to be classified in a fair value hierarchy, ranging from level 1 to 3, depending on how the fair value has been determined and the data on which it is based. Fair value is the value at which a financial asset may be traded between independent counterparties.

Level 3: Unobservable input in which the material input for the valuation is not based on observable input.

Fair value is determined based on the following hierarchy:

There have not been any transfers between the levels in the first half of 2017.

Level 1: Quoted prices in an active market for identical assets or liabilities.

KOMMUNEKREDIT

15

Level 2: Observable input based on quoted prices in an active market for similar assets or liabilities or other valuation methods, in which all material input is based on observable input.

INTERIM REPORT 2017

NOTES

NOTE 2 – CONTINUED SPECIFICATION OF FAIR VALUE OF FINANCIAL INSTRUMENTS DKKm

Level 1

Level 2

Level 3

Total

DKKm

Level 1

Level 2

Level 3

Total

30 Jun 2017

31 Dec 2016

Assets

Assets


0 5,387


Lending 0 166,071

0 166,071

Lending


0 42,706


28,526

5,523

0

34,049

0 8,546 1,138 9,684


0

18,299

1,258

19,557

Derivative financial instruments Total assets

7 5,380 38,201 4,505 38,208 184,502

1,138 223,848

74

1,518

0 162,990

Total assets 28,600 188,330

0

1,592

0 162,990

1,258 218,188

Liabilities

Liabilities


0 1,234


Debt securities issued on nasdaq

0 40,692

692 41,384

Debt securities issued on nasdaq

0

41,117

1,210

42,327

Debt securities issued internationally

0 149,796 19,177 168,973

Debt securities issued internationally

0

141,755

18,560

160,315

9,782

1,210

10,992

0 1,234

0

2,475

0

2,475


0 9,271 1,231 10,502


0

Total liabilities

0 200,993 21,100 222,093

Total liabilities

0 195,129 20,980 216,109

KOMMUNEKREDIT

16

INTERIM REPORT 2017

NOTES

NOTE 2 – CONTINUED

NOTE 3

SPECIFICATION OF FAIR VALUE LEVEL 3

EVENTS AFTER THE BALANCE SHEET DATE

DKKm Assets Liabilities

No events have occurred in the period from 30 June 2017 to the signing of the interim report, which in management’s opinion have a material effect on the association’s financial position.

30 Jun 2017 Balance at 1 January

1,258 20,980

Additions 394 9,090 Disposals -86 -6,938 Included in comprehensive income

-428 -2,032

Balance at 30 June

1,138 21,100

31 Dec 2016 Balance at 1 January

1,392

29,250

Additions 52 7,715 Disposals -419 -16,333 Included in comprehensive income

233

348

Balance at 30 December

1,258

20,980

KOMMUNEKREDIT

17

INTERIM REPORT 2017

NOTES

NOTE 4 OFFSETTING The carrying amount of FX-trades is offset, when payments are subject to net settlement. Offsetting constitutes DKK 2,290 million.

KommuneKredit has entered into master netting agreements (ISDA Master Agreement) and related unilateral or bilateral collateral agreements for derivative financial instruments. The received and posted collateral is solely comprised of highly rated bonds.

The value of derivative financial instruments not offset has been limited to the lesser of assets and liabilities, respectively, and is calculated per counterparty. The amount is included in both assets and liabilities.

KommuneKredit has not entered into master netting agreements nor posted or received collateral in relation to lending, lease receivables and debt securities issued. Consequently, these financial instruments have not been included in the table below. The carrying amounts appear from the statement of financial position.

The value of collateral is determined per counterparty and has been limited to the calculated net receivable.

Derivative financial instruments presented in the statement of financial position Amounts offset Amounts not offset DKKm

The net values represent the carrying amounts corresponding to the potential accounting effect of offsetting.

Gross Net Financial carrying carrying instru- Net amount Offset amount ments Collateral amount

30 Jun 2017 Assets

11,974 -2,290 9,684 -3,495 -3,900 1,839

Liabilities

12,792 -2,290 10,502 -3,945 -4,625 1,932

Net

-818 0 -818 0 725 -93

31 Dec 2016 Assets

19,705 -148 19,557 -7,243 -9,664 2,650

Liabilities

11,140 -148 10,992 -7,243 -2,258 1,491

Net

8,565

0 8,565

0 -7,406 1,159

KOMMUNEKREDIT

18

INTERIM REPORT 2017

NOTES

NOTE 5 LIQUIDITY RESOURCES The Ministry of Economic Affairs and the Interior permits KommuneKredit to build up liquidity resources of prefunding of up to 25 pct. of total lending as at the end of the previous quarter. The upper limit amounted to DKK 42 billion at the end of the period, and KommuneKredit’s liquidity resources amounted to DKK 40 billion. The utilization of the limit has fluctuated during the first half of 2017, and the highest level of liquidity resources has been 24 pct.

30 Jun 31 Dec DKKm 2017 2016 Liquidity resources Debt to credit institutions, debt securities issued and derivative financial instruments

Liquidity resources are determined at carrying amount as debt to credit institutions, debt securities issued and derivative financial instruments less lending and lease receivables.


1,234 2,475

Debt securities issued

210,357 202,642


10,502 10,992


-9,684 -19,557

Total debt to credit institutions, debt securities issued and derivative financial instruments

212,409 196,552

Lending and lease receivables Lending 166,071 162,990 Lease receivables 6,200 5,599 Total lending and lease receivables

172,271 168,589

Liquidity resources 40,138 27,963 Liquidity resources may not exceed 25 pct. of total lending and lease receivables as at the end of the previous quarter. Liquidity resources 40,138 27,963 Total lending and lease receivables as at the end of the last quarter 169,616 169,626 Liquidity resources in pct.

KOMMUNEKREDIT

19

INTERIM REPORT 2017

24 16


STATEMENT BY THE BOARD OF DIRECTORS AND MANAGEMENT The Board of Directors and Management have today


discussed and approved the interim financial statements for the period 1 January 2017 – 30 June 2017

MANAGEMENT

for KommuneKredit. The interim financial statements are prepared in accordance with IAS 34, Interim Financial Reporting, as

Jens Lundager

Johnny Munk

/Morten Søtofte

adopted by the EU.

CEO & Managing Director

Managing Director

Chief Financial and Risk Officer

Hans Toft

In our opinion, the interim financial statements give a fair representation of the association’s financial position as of 30 June 2017 and of comprehensive income from

BOARD OF DIRECTORS

the association’s activities and cash flows for the period 1 January 2017 – 30 June 2017. Further, in our opinion, Management’s review contains

Erik Nielsen

Lars Krarup

a fair representation of the development in the asso-

Chairman

Vice Chairman

Henrik Zimino

Anker Boye

Sophie Hæstorp Andersen

Kaj V. Holm

Mikael Klitgaard

Anne V. Kristensen

ciation’s activities, financial matters, comprehensive income for the period and of the association’s financial position in its entirety.

KOMMUNEKREDIT

20

INTERIM REPORT 2017


THE INDEPENDENT AUDITORS’ REPORT ON REVIEW OF THE INTERIM FINANCIAL STATEMENTS TO THE BOARD OF DIRECTORS OF KOMMUNEKREDIT

Danish audit regulation. This requires us to conclude

2017 have not, in all material respects, been prepared

whether anything has come to our attention, which caus-

in accordance with IAS 34, Interim Financial Reporting,

es us to believe that the interim financial statements, as

as adopted by the EU.

We have conducted a review of the interim financial

a whole, has not in all material aspects been prepared in

statements of KommuneKredit for the period 1 January

accordance with the relevant accounting framework. This

STATEMENT ON MANAGEMENT’S REVIEW

2017 – 30 June 2017, which comprises statement of

also requires us to comply with ethical requirements.

As part of our review we have read Management’s review.

comprehensive income, statement of financial position,

We have not performed further actions in addition to the

statement of changes in equity, statement of cash

A review of the interim financial statements conduct-

flows, and notes including applied accounting policies.

ed in accordance with the international standard on

completed review of the interim financial statements.

Review of Interim Financial Information Performed by the

On this basis, we are of the opinion that the informa-

MANAGEMENT’S RESPONSIBILITY

Independent Auditor of the Entity is a limited assurance

tion in Management’s review is in accordance with the

FOR THE INTERIM FINANCIAL STATEMENTS

engagement. The auditors perform procedures primarily

interim financial statements.

Management is responsible for the preparation of the

consisting of making inquiries of Management and others

interim financial statements in accordance with IAS 34,

in KommuneKredit, as appropriate, as well as applying an-

Interim Financial Reporting, as adopted by the EU. Man-

alytical procedures and evaluating the evidence obtained.

agement is, furthermore, responsible for such internal

Copenhagen, 25 August 2017 DELOITTE

controls as Management deems necessary to prepare

The extent of the procedures carried out in a review is

Statsautoriseret Revisionspartnerselskab

interim financial statements free of material misstate-

substantially less than in an audit performed in ac-

CVR-no. 33 96 35 56

ment, whether due to fraud or error.

cordance with the International Standards on Auditing. Accordingly, we do not express an audit opinion on the

AUDITOR’S RESPONSIBILITY

interim financial statements.

Anders Oldau Gjelstrup

Our responsibility is to express an opinion on the interim

State Authorised Public Accountant

financial statements. We have conducted our review in

OPINION

accordance with the international standard on Review of

Based on our review, nothing has come to our atten-

Interim Financial Information Performed by the Independ-

tion that causes us to believe that the interim financial

Thomas Hjortkjær Petersen

ent Auditor of the Entity and further requirements under

statements for the period 1 January 2017 – 30 June

State Authorised Public Accountant

KOMMUNEKREDIT

21

INTERIM REPORT 2017


REPORT BY THE AUDITOR APPOINTED BY THE MINISTRY FOR ECONOMIC AFFAIRS AND THE INTERIOR TO THE BOARD OF DIRECTORS OF KOMMUNEKREDIT As the auditor appointed by the Ministry for Economic Affairs and the Interior, I have reviewed the interim financial statements of KommuneKredit for the period 1 January 2017 – 30 June 2017, prepared by Management. In addition, I have read Management’s review. During my review, I did not identify any non-compliance with the Danish act governing KommuneKredit or KommuneKredit’s articles of association. The audit procedures performed by Deloitte did not give rise to any comments on my part.


Emil le Maire Former Prefect

KOMMUNEKREDIT

22

INTERIM REPORT 2017

PHOTOS Tuala Hjarnø and Nicky Bonne THANK YOU to The Sankt Annæ project and the members of the green committee for participating in the cases. DESIGN AND PRODUCTION noted.dk DISCLAIMER The annual report is prepared in Danish and translated into English. In case of discrepancies the Danish version shall prevail.

READ MORE ABOUT KOMMUNEKREDIT AT KOMMUNEKREDIT.DK

KOMMUNEKREDIT Kultorvet 16 DK-1175 Copenhagen K Denmark Tel. +45 33 11 15 12 [email protected] www.kommunekredit.dk CVR-no. 22 12 86 12

INTERIM REPORT

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