BT 2012 Annual Report Download - page 134

Financial statements
Notes to the consolidated financial statements
BTPS assets
Asset allocation
The target allocation of assets between different classes of investment is reviewed regularly and is a key factor in the Trustee’s investment policy.
The targets set reflect the Trustee’s views on the appropriate balance to be struck between seeking returns and incurring risk, and on the extent to
which the assets should be distributed to match liabilities. Current market conditions and trends are continuously assessed and short-term tactical
shifts in asset allocation may be made around the long-term target. The BTPS also uses financial instruments to balance the asset allocation and to
manage interest rate risk, liquidity risk and foreign currency risk.
In the light of uncertainty in global economic conditions the Trustee has held a more defensive asset allocation during the year. This has included a
short-term tactical decision to hold a lower equity allocation.
The lump sum deficit payment of £2.0bn made in late March 2012 is included in ‘cash and other’. In April 2012 the Scheme invested around
£2.0bn of cash in a portfolio of global corporate bonds.
Under IAS 19 plan assets must be valued at the bid market value at the balance sheet date. For the main asset categories:
•securities listed on recognised stock exchanges are valued at closing bid prices
•properties are valued on the basis of open market value
•unlisted equities are valued in accordance with International Private Equity and Venture Capital (IPEVC) guidelines. Unlisted fixed interest and
index-linked instruments are valued using the latest market price or using discounted cash flow models that consider credit risk.
The fair values of the assets of the BTPS analysed by asset category and the assumptions for the expected long-term rate of return on assets at
31 March were:
2012 2011
Expected Expected
long-term long-term
rate of return rate of return
(per year) Asset fair valuebTarget (per year) Asset fair valuebTarget
At 31 March %£bn%%%£bn%%
UK equities 7.10 1.9 5 9 7.90 3.2 8 9
Non-UK equities 7.10 5.9 16 22 7.90 8.2 22 22
Fixed-interest securities 3.70 7.4 19 22 5.00 4.4 12 22
Index-linked securities 2.90 7.4 19 15 4.10 5.9 16 15
Property 6.50 4.1 11 11 7.00 3.9 11 11
Alternative assetsa6.00 8.1 21 21 6.70 7.3 20 21
Cash and other 2.20 3.5 9 – 3.60 4.1 11 –
5.40 38.3 100 100 6.35 37.0 100 100
aAlternative asset classes include commodities, hedge funds, private equity, infrastructure and credit opportunities.
bAt 31 March 2012 and 31 March 2011, the scheme’s assets did not include any ordinary shares of the company. However, the scheme held £8m (2011: £7m) of index-linked bonds and £nil (2011:
£10m) of bonds issued by the group.
The expected returns on fixed-interest and index-linked securities are based on the gross redemption yields at the start of the year which assume
that the security is held to maturity. Expected returns on equities, property and alternative asset classes are based on a combination of an estimate
of the risk premium above yields on government bonds, consensus economic forecasts of future returns and historical returns.
The overall expected long-term rate of return on assets at the end of the year is derived using the expected long-term rates of return for each
category of asset weighted by the target asset allocation. The resulting percentage is used to calculate the expected return on plan assets reported
in the income statement in the following year as a specific item.
The Trustee reports on investment performance against a target benchmark which is based on the target asset mix and the market returns for each
asset class. BTPS performance against the benchmark for the periods to 31 December 2011 was as follows:
Over
Target Actual (under)
benchmark BTPS performance
Period ending 31 December 2011 %%%
1 year 3.7 1.7 (2.0)
3 years 8.6 8.4 (0.2)
10 years 5.4 6.2 0.8
Further commentary on investment performance is provided by the Trustee in the BTPS Annual Report.
20. Retirement benefit plans continued
Overview
BusinessStrategy
Performance
Governance
Financial statements
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BusinessStrategy
Performance
Governance
Financial statements
Additional information