SAMPO PLC HALF-YEAR FINANCIAL REPORT 9 August 2017 at 9:30 am
Sampo Group's Results for January - June 2017
Sampo Group's profit before taxes for January - June 2017 amounted to EUR 865 million (893). The total comprehensive income for the period, taking changes in the market value of assets into account, rose to EUR 821 million (607).
- Earnings per share amounted to EUR 1.34 (1.40). Mark-to-market earnings per share were EUR 1.47 (1.08). The return on equity (RoE) for the Group was 14.1 per cent (10.9) for January - June 2017. Net asset value per share on 30 June 2017 amounted to EUR 25.60 (24.86).
- Profit before taxes for the P&C insurance segment was EUR 453 million (436). Combined ratio for January-June 2017 was 86.5 per cent (83.7). Adjusted for one-offs this is the best ever combined ratio in If's history for the first six months of a year. The comparison figure, excluding the EUR 72 million release from the Swedish MTPL reserves in the first quarter of 2016, was 87.1 per cent. Return on equity was 30.5 per cent (16.2). The contribution of Topdanmark's net profit for the first half of 2017 amounted to EUR 52 million (19).
- Sampo's share of Nordea's net profit for the first half of 2017 was EUR 322 million (364). Nordea's return on equity amounted to 9.9 per cent (10.7). Core Tier 1 ratio (excluding transition rules) strengthened to 19.2 per cent (18.4). In segment reporting the share of Nordea's profit is included in the segment 'Holding'.
- Profit before taxes in life insurance operations rose to EUR 116 million (103). Return on equity increased to 15.6 per cent (6.5).
| KEY FIGURES | 1-6/2017 | 1-6/2016 | Change, % | 4-6/2017 | 4-6/2016 | Change, % |
| EURm | ||||||
| Profit before taxes | 865 | 893 | -3 | 435 | 477 | -9 |
| P&C insurance | 453 | 436 | 4 | 252 | 220 | 14 |
| Associate (Nordea) | 322 | 364 | -12 | 150 | 205 | -27 |
| Life insurance | 116 | 103 | 12 | 62 | 51 | 23 |
| Holding (excl. Nordea) | -27 | -11 | 153 | -29 | 1 | - |
| Profit for the period | 753 | 783 | -4 | 375 | 421 | -11 |
| Change | Change | |||||
| Earnings per share, EUR | 1.34 | 1.40 | -0.06 | 0.67 | 0.75 | -0.08 |
| EPS (incl. change in FVR) EUR | 1.47 | 1.08 | 0.39 | 0.47 | 0.72 | -0.27 |
| NAV per share, EUR *) | 25.60 | 24.86 | 0.74 | - | - | - |
| Average number of staff (FTE) | 6,907 | 6,774 | 133 | - | - | - |
| Group solvency ratio, % *) | 163 | 154 | 9 | - | - | - |
| RoE, % | 14.1 | 10.9 | 3.2 | - | - | - |
*) comparison figure from 31.12.2016
The figures in this report are not audited. Income statement items are compared on a year-on-year basis and comparison figures for balance sheet items are from 31 December 2016 unless otherwise stated.
Sampo follows the disclosure procedure enabled by the Finnish Financial Supervisory Authority and hereby publishes its Interim Statement attached as a PDF file to this stock exchange release. The Interim Statement is also available at www.sampo.com/result (http://www.sampo.com/result).
| Exchange rates used in reporting | 1-6/2017 | 1-3/2017 | 1-12/2016 | 1-9/2016 | 1-6/2016 |
| EUR 1 = SEK | |||||
| Income statement (average) | 9.596831 | 9.506277 | 9.469787 | 9.373929 | 9.302345 |
| Balance sheet (at end of period) | 9.639800 | 9.532200 | 9.552500 | 9.621000 | 9.424200 |
| DKK 1 = SEK | |||||
| Income statement (average) | 1.290447 | 1.278533 | 1.271815 | 1.258621 | 1.248620 |
| Balance sheet (at end of period) | 1.296264 | 1.281571 | 1.284905 | 1.291184 | 1.266813 |
| NOK 1 = SEK | |||||
| Income statement (average) | 1.045577 | 1.057524 | 1.019191 | 0.999821 | 0.987486 |
| Balance sheet (at end of period) | 1.007157 | 1.039691 | 1.051308 | 1.070606 | 1.013268 |
SECOND QUARTER 2017 IN BRIEF
Sampo Group's profit before taxes for the second quarter 2017 amounted to EUR 435 million (477). Earnings per share was EUR 0.67 (0.75) and mark-to-market earnings per share EUR 0.47 (0.72).
Net asset value per share decreased EUR 1.07 during the second quarter of 2017 and was EUR 25.60. The net asset value was reduced by the dividend of EUR 2.30 paid in May 2017.
The second quarter combined ratio in P&C insurance amounted to 85.7 per cent (84.5). Profit before taxes increased to EUR 252 million (220). Share of the profits of the associated company Topdanmark amounted to EUR 31 million (14).
Sampo's share of Nordea's second quarter 2017 net profit decreased to EUR 150 million (205).
Profit before taxes for the life insurance operations rose to EUR 62 million (51). Premiums written decreased 22 per cent to EUR 194 million from EUR 248 million at the corresponding period a year ago.
BUSINESS AREAS
P&C insurance
Profit before taxes for January-June 2017 for the P&C insurance segment rose to EUR 453 million (436). Combined ratio amounted to 86.5 per cent (83.7) and risk ratio to 64.5 per cent (61.6). In the first quarter of 2017 the discount rate used to discount Finnish annuities was lowered by 0.3 percentage points to 1.2 per cent. This impacted the combined ratio for January - June 2017 negatively with 3.3 percentage points. The comparison year contains an extraordinary reserve release in Swedish motor insurance improving the combined ratio for the first half of 2016 by 3.4 percentage points.
Net releases from technical reserves relating to prior year claims were EUR 32 million (95) in January - June 2017. Return on equity increased to 30.5 per cent (16.2) and the fair value reserve at the end of June 2017 was EUR 595 million (484). The contribution of Topdanmark's net profit in the first half of 2017 amounted to EUR 52 million (19).
Technical result decreased to EUR 294 million (352). Insurance margin (technical result in relation to net premiums earned) amounted to 14.0 per cent (16.6).
In business area Commercial large claims were EUR 45 million worse than normalized in January - June 2017. In business area Industrial large claims were EUR 28 million better than normalized, i.e. all in all large claims were EUR 17 million higher than expected. Sweden and particularly Norway suffered from large claims in business area Commercial. The lowering of the discount rate for annuities in Finland in the first quarter of 2017 impacted Finnish country specific result and also on all the business areas excluding Baltic negatively. The combined ratio for Finland for January - June 2017 increased 14.8 percentage points due to the change. The release from the Swedish MTPL reserves affected both the Swedish country specific result and the Private and Commercial business area results positively in the comparison period.
Swedish discount rate used to discount the annuity reserves remained at the same level as at the end of 2016 and at the end of first quarter of 2017.
Gross written premiums grew to EUR 2,706 million (2,683) in January-June 2017. Adjusted for currency, premium growth was 0.9 per cent. Growth was positive in all business areas except Industrial. Premiums grew in all markets except in Finland.
Cost ratio amounted to 22.0 per cent (22.2) while expense ratio was 16.4 per cent (16.8).
At the end of June 2017, the total investment assets of If P&C amounted to EUR 12.3 billion (12.2), of which fixed income investments constituted 81 per cent (79), money market 6 per cent (8) and equity 13 per cent (13). Net income from investments increased to EUR 127 million (80). Investment return marked-to-market for January-June 2017 amounted to 2.4 per cent (0.5). Duration for interest bearing assets was 1.5 years (1.4) and average maturity 2.9 years (2.8). Fixed income running yield without taking into account the FX hedging cost as at 30 June 2017 was 1.6 per cent (1.7).
If's solvency position is described in the section Solvency.
Associated company Nordea Bank AB
On 30 June 2017 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 8.49 per share. The closing price as at end of June 2017 was EUR 11.12.
The following text is based on Nordea's January-June 2017 interim report published on 20 July 2017.
After a period of improved margins, Nordea recently saw a stabilizing margin trend. Net interest income was unchanged in local currencies (up 1 per cent in EUR) from 2016. Average lending volumes in business areas in local currencies were slightly down by 1 per cent compared to the first half of 2016 while deposits volumes were slightly up by 1 per cent.
Total income was up 3 per cent in local currencies (up 4 per cent in EUR) from the prior year and operating profit was up 1 per cent in local currencies (up 2 per cent in EUR) from the previous year excluding non-recurring items.
Net fee and commission income increased 10 per cent in local currencies (increased 9 per cent in EUR) from the previous year.
Net results from items at fair value increased 2 per cent in local currencies (unchanged in EUR) from 2016.
Total expenses were up 7 per cent in local currencies (6 per cent in EUR) from the previous year excluding non-recurring items and amounted to EUR 2,537 million. Staff costs were up 7 per cent in local currencies excluding non-recurring items.
Credit quality is solid. Net loan loss provisions decreased to EUR 219 million, corresponding to a loan loss ratio of 14 bps during the first half of 2017 (unchanged from first half 2016).
Net profit excluding non-recurring items decreased 3 per cent in local currencies (2 per cent in EUR) to EUR 1,587 million. Currency fluctuations had no effect on income and expenses but a negative effect of 1 percentage point on loan and deposit volumes compared to a year ago.
Nordea Group's Basel III Common equity tier 1 (CET1) capital ratio increased to an all-time high of 19.2 per cent at the end of the second quarter of 2017, compared to 18.8 per cent at the end of the first quarter of 2017. Risk exposure amount (REA) decreased EUR 3.9 billion to EUR 129.7 billion. The main drivers were foreign exchange effects, improved credit quality as well as reduced volumes.
Further information on Nordea Bank AB and its January - June 2017 result is available at www.nordea.com (http://www.nordea.com/).
Life insurance
Profit before taxes for life insurance operations increased to EUR 116 million (103) in the first half of 2017. The total comprehensive income for the period after tax reflecting the changes in market values of assets more than doubled to EUR 111 million (44). Return on equity (RoE) amounted to 15.6 per cent (6.5). In the first half of 2017 fair value reserve increased to EUR 613 million (596). Net investment income, excluding income on unit-linked contracts, amounted to EUR 256 million (156). Net income from unit-linked contracts was EUR 262 million (-75).
On 30 June 2017 Mandatum Life Group's total technical reserves amounted to EUR 11.5 billion (11.3). In the first half of 2017 with profit reserves amounted to EUR 4.8 billion (4.8). Reserves related to the higher guarantees of 4.5 and 3.5 per cent decreased by EUR 111 million to EUR 2.8 billion during January - June 2017. The unit-linked reserves increased to EUR 6.7 billion (6.4), which corresponds to 57 per cent (56) of total technical reserves.
Mandatum Life has supplemented its technical reserves with a total of EUR 358 million (273) due to low level of interest rates. The figure does not take into account the reserves relating to the segregated fund. The discount rate used for 2017, 2018 and 2019 is 0.25 per cent and for 2020 the rate is 1.00 per cent. Discount rate applied for the segregated fund is 0.50 per cent.
Mandatum Life Group's investment assets, excluding the assets of EUR 6.8 billion (6.5) covering unit-linked liabilities, amounted to EUR 6.7 billion (6.5) at market values at the end of June 2017.
The assets covering Mandatum Life's original with profit liabilities on 30 June 2017 amounted to EUR 5.4 billion (5.4) at market values. 46 per cent (41) of the assets are in fixed income instruments, 12 per cent (14) in money market, 29 per cent (30) in equities and 14 per cent (15) in alternative investments. The investment return marked-to-market for January - June 2017 was 4.6 per cent (1.5). The duration of fixed income assets at the end of June 2017 was 2.1 years (1.9) and average maturity 2.4 years (2.3). Fixed income (incl. money market) running yield without taking into account the FX hedging cost as at 30 June 2017 was 2.8 per cent (3.1).
The assets covering the segregated fund amounted to EUR 1.1 billion (1.2), of which 77 per cent (75) was in fixed income, 8 per cent (10) in money market, 8 per cent (8) in equities and 7 per cent (7) in alternative investments. Segregated fund's investment return marked-to-market for January - June 2017 was 0.9 per cent (1.7). At the end of June 2017 the duration of fixed income assets was 2.7 years (2.4) and average maturity 3.5 years (3.5). Fixed income (incl. money market) running yield without taking into account the FX hedging cost as at 30 June 2017 was 2.1 per cent (1.9).
The expense result for life insurance segment rose to EUR 13 million (9) and the risk result to EUR 15 million (11).
Mandatum Life Group's premium income on own account decreased to EUR 423 million (492) in the first half of 2017.
Mandatum Life's solvency position is described in the section Solvency.
Mandatum Life Insurance Co. Ltd. disclosed on 27 October 2016 that it will exercise its option to sell the insurance portfolio, sold through Danske Bank's branch network in Finland, to Danske Bank or its nominee. The valuation process was finalized by 19 June 2017 and the value of the insurance portfolio as at the 31 December 2016 was determined to be EUR 334 million.
Mandatum Life and Danske Bank have agreed that the theoretical result from the beginning of 2017 until the date of the transfer as determined in the valuation process will be deducted from the final sales price. This theoretical result for year 2017 is determined to be EUR 18.1 million and for year 2018 EUR 18.6 million. Furthermore Mandatum Life and Danske Bank have agreed that the actual result produced by the portfolio until the transfer remains with Mandatum Life. The Transitional Agency Agreement between Mandatum Life and Danske Bank will continue until closing.
After the transfer has been completed the transaction is expected to have a negative impact of EUR 20 - 25 million on Mandatum Life's annual profit before taxes. The transfer of the portfolio is expected to take place during 2018.
For Mandatum Life sales gain from the transaction equals the value of the insurance portfolio adjusted with items explained in the previous chapter. The sales gain is taxable under the Finnish tax law. In Sampo Group's consolidated accounts a goodwill of approximately EUR 75 million will be deducted from the sales gain. The transaction will have a positive impact on Mandatum Life's solvency position.
Holding
Holding segment's profit before taxes for January - June 2017 was EUR 295 million (353), of which EUR 322 million (364) comes from Sampo's share of Nordea's first half 2017 profit. Segment's profit excluding Nordea was EUR -27 million (-11). The result is due to currency losses of EUR -20 million caused mainly by the weakening of USD but also by the changes in SEK-EUR exchange rate.
Sampo plc's holding in Nordea Bank was booked in the consolidated balance sheet at EUR 7.3 billion, i.e. EUR 8.49 per share. The market value of the holding was EUR 9.6 billion, i.e. EUR 11.12 per share, on 30 June 2017.
At end of June 2017 Sampo plc held 41,997,070 Topdanmark shares, which corresponds to 46.7 per cent of all shares in Topdanmark and 49.3 per cent of all votes. The market value of the holding was EUR 1.2 billion, i.e. DKK 207.90 (approx. EUR 28) per share and the book value on the Group accounts was EUR 626 million at 30 June 2017.
In addition the assets on Sampo plc's balance sheet included holdings in subsidiaries for EUR 2.4 billion (2.4).
OTHER DEVELOPMENTS
Shares and share capital
The Annual General Meeting held on 27 April 2017 authorized the Board to repurchase a maximum of 50,000,000 Sampo A shares. The maximum price to be paid will be highest market price quoted during the authorization period. The authorization will be valid until the close of the next Annual General Meeting, nevertheless not more than 18 months after AGM's decision. Sampo plc did not repurchase its own shares during the first half of 2017. At the end of June 2017, neither Sampo plc nor its Group companies held any Sampo A shares.
Sampo's Annual General Meeting held on 27 April 2017 decided to forfeit the rights carried by the shares in the joint book-entry account. The number of shares on the joint account on 31 July 2017 amounted to 5,036,780 corresponding to 0.90 per cent of all shares. The number of shares in the joint account has decreased by 1,871,720 shares from 6,908,500 at the end of October 2016.
Solvency
As of 1 January 2016 insurance subgroups If P&C and Mandatum Life have applied Solvency II rules in their regulatory solvency calculations. When calculating solvency requirements and eligible own funds at Group level, standard model is used for both subgroups.
On 30 June 2017 If P&C Group's Solvency II capital requirement under standard model amounted to EUR 1,968 million (1,942) and own funds to EUR 4,437 million (3,822). Solvency ratio was the highest ever and rose to 225 per cent (197).
Mandatum Life's solvency ratio with transitional measures rose to 205 per cent (160). This is the highest Solvency II ratio Mandatum Life has ever reported. Own funds of EUR 2,210 million (1,893) exceed Solvency Capital Requirement (SCR) of EUR 1,077 million (1,182) by EUR 1,133 million. Without transitional measures, own funds would have amounted to EUR 1,774 and the solvency capital requirement EUR 1,265 million leading to a solvency ratio of 140 per cent.
Group's conglomerate solvency ratio (own funds in relation to minimum requirements for own funds) was 163 per cent (154) as at 30 June 2017.
More information on Sampo Group's capital policy is available at the Risk Management section of the Annual Report 2016 at www.sampo.com/annualreport (http://www.sampo.com/annualreport).
Debt financing
Sampo plc's debt financing on 30 June 2017 amounted to EUR 3,279 million (3,548) and interest bearing assets to EUR 1,137 million (2,104). Interest bearing assets include bank accounts, fixed income instruments and EUR 628 million (637) of hybrid capital and subordinated debt instruments issued by the subsidiaries and associated companies. Altogether, excluding cash and equivalents, the fixed income instruments yield 5.3 per cent.
At the end of the second quarter of 2017 the interest bearing net debt amounted to EUR 2,142 million (1,443). The net debt calculation takes into account interest bearing assets and liabilities. Gross debt to Sampo plc's equity was 47 per cent (47) and financial leverage 32 per cent (32).
On 30 May 2017 Sampo plc issued under its EMTN Programme senior unsecured fixed rate notes of EUR 500 million maturing on 30 May 2025.
On 30 June 2017 financial liabilities in Sampo plc's balance sheet consisted of issued senior bonds and notes of EUR 2,884 million (2,877) and EUR 394 million (671) of CPs issued. The average interest, net of interest rate swaps, on Sampo plc's debt as of 30 June 2017 was 0.91 per cent (1.37).
More information on Sampo Group's outstanding debt issues is available at www.sampo.com/debtfinancing (http://www.sampo.com/debtfinancing).
OUTLOOK
Outlook for 2017
Sampo Group's business areas are expected to report good operating results for 2017.
However, the mark-to-market results are, particularly in life insurance, highly dependent on capital market developments. The continuing low interest rate level also creates a challenging environment for reinvestment in fixed income instruments.
The P&C insurance operations are expected to reach a combined ratio of 86 - 89 per cent for the full-year 2017.
Nordea's contribution to the Group's profit is expected to be significant.
The major risks and uncertainties to the Group in the near-term
In its day-to-day business activities Sampo Group is exposed to various risks and uncertainties mainly through its separately managed major business units. Parent company Sampo plc's contribution to risks is a minor one.
Major risks affecting the Group companies' profitability and its variation are market, credit, insurance and operational risks that are quantified independently by the major business units. At the Group level sources of risks are same, but they are not additive because of diversification effects.
Uncertainties in the form of major unforeseen events may have an immediate impact on the Group's profitability. Identification of unforeseen events is easier than estimation of their probabilities, timing and potential outcomes. Currently there are a number of widely identified macro-economic, political and other sources of uncertainty which can in various ways affect financial services industry negatively.
Other sources of uncertainty are unforeseen structural changes in the business environment and already identified trends and potential wide-impact events. These external drivers may also have a long-term impact on how the business shall be conducted.
SAMPO PLC
Board of Directors
For more information, please contact:
Peter Johansson, Group CFO, tel. +358 10 516 0010
Jarmo Salonen, Head of Investor Relations and Group Communications, tel. +358 10 516 0030
Maria Silander, Communications Manager, tel. +358 10 516 0031
Press conference & analyst conference call
Sampo will arrange a press conference at Savoy (Main cabinet, 7th floor, Eteläesplanadi 14, Helsinki) today 9 August at 12:30 pm Finnish time. The press conference will be held in Finnish.
An English-language conference call for investors and analysts will be arranged at 4:00 pm Finnish time (2:00 pm UK time). Please call tel. +44 (0)33 0336 9105, +1 719 325 2213, +46 (0)8 5033 6574 or +358 (0)9 7479 0361. Confirmation Code: 2459098
The conference call can also be followed live at www.sampo.com/result (http://www.sampo.com/result). A recorded version will later be available at the same address.
In addition the Supplementary Financial Information Package is available at www.sampo.com/result (http://www.sampo.com/result).
Sampo will publish the Interim Statement for January-September 2017 on 2 November 2017.
Distribution:
Nasdaq Helsinki
London Stock Exchange
The principal media
Financial Supervisory Authority
www.sampo.com (http://www.sampo.com/)
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Sampo Oyj via Globenewswire
