1st Quarter Results

Sampo Group's Interim Report January - March 2005

 

Strong operational results in all business areas

 

Sampo Group's profitability in the first quarter of 2005 was good. Profit before taxes rose to EUR 230 million (190) and RoEC was 21.5 per cent. Earnings per share, as reported in the income statement, amounted to EUR 0.30 (0.28). Taking into account the change in the fair value reserve, earnings were EUR 0.37 per share (0.36). Net asset value per share was EUR 0.30 higher than at the end of 2004 and increased to EUR 6.46 (6.16).

 

- Group operating profit increased to EUR 227 million (201). Profit for the financial period was EUR 172 million (157), leading to earnings per share of EUR 0.30 (0.28). Taking the change in the fair value reserve into account increases earnings by an additional EUR 0.07 per share. RoEC exceeded the 19 per cent target and was 21.5 per cent.

- Banking and investment services made a profit of EUR 62 million before taxes (56). Lending especially in housing loans and in the Baltic banks grew strongly and net interest income rose to EUR 82 million (80). Net fees and commissions developed favourably and were EUR 51 million (48), mainly driven by the growth of asset management fees. Credit quality remained good. RoEC in banking and investment services was 18.3 per cent.

- The combined ratio in P&C insurance operations improved significantly and was 94.9 per cent (100.8). Net investment income amounted to EUR 74 million and profit before taxes rose to EUR 117 million. RoEC in P&C insurance was 21.4 per cent.

- Life insurance operations had a good quarter as investment income rose to EUR 124 million (92) and operating profit was EUR 60 million (23). RoEC in life insurance was 33.3 per cent.

- The results of Sampo plc, the Group's parent company, and Primasoft, IT-services provider, are reported under the Other segment. Primasoft's effect on the profit is negligible. The reported loss of EUR 12 million (122) is due to the operating costs of the parent company and the interest paid on financing the acquisition of the P&C subsidiary, If. The comparison figure contains EUR 95 million in sales gains from Skandia shares.

 

 

 

 

The figures in this interim report are unaudited.

 

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Sampo Group is preparing its first consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) for the period, 1 January to 31 December 2005. The information in this interim report is presented according to the Finnish requirements. The interim report for the first quarter of 2005 has been prepared in accordance with the IFRS and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) issued and effective at the time of preparing these statements. The consolidated financial statements for 2005 will be prepared in accordance with the IFRS standards effective at 31 December 2005. Sampo's consolidated financial statements were prepared in accordance with Finnish Accounting Standards (FAS) until 31 December 2004. FAS differs in some areas from IFRS. The comparative figures for 2004 have been restated to comply with the IFRS.

 

Sampo Group

 

Sampo Group's profitability in the first quarter of 2005 was good. Profit before taxes rose to EUR 230 million (190). Earnings per share amounted to EUR 0.30 (0.28) or, taking into account the change in the fair value reserve, EUR 0.37 (0.36). RoEC was 21.5 per cent, thus exceeding the 19.0 per cent target.

             

2005 will be the first full financial year when Sampo's P&C insurance subsidiary, if, will be fully consolidated. In the first quarter of 2004, If was still treated as an associated company. Although the growth in Group profit reflects the consolidation of If, profits in banking and investment services and in life insurance also grew.

 

During the first quarter of 2005 the Group's equity grew by EUR 191 million to EUR 3,631 million. This was due not only to the profit for the period, but also to the EUR 38 million increase in the fair value reserve. Sampo Group's capital adequacy is as of 1 January 2005 measured by the national rules on conglomerate capital adequacy based on the European Union's Directive 2002/87/EU. At the end of March 2005 Sampo Group's own funds exceeded the minimum solvency requirements by EUR 1,736 million and solvency ratio was 182.3 per cent.

 

 

 

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Changes in Group structure

 

In early February If P&C Insurance Ltd (publ.) sold its 42.1 per cent stake in Gard Marine & Energy Ltd to Gard P&I Ltd. It had been intended that the financial investment would be successively reduced over time, but Gard P&I exercised its right to acquire the shares ahead of plan.

 

Sampo Life Insurance Company Limited was granted in April permission to pursue the life insurance business in Sweden. Finansinspektionen, the supervisory authority for the banking and insurance industry in Sweden, granted a license for a new company, If Livförsäkring AB. The company is fully owned by Sampo Life.

Administration

 

The Annual General Meeting held on 11 April 2005 re-elected the earlier 8 members - Tom Berglund, Anne Brunila, Georg Ehrnrooth, Jyrki Juusela, Olli-Pekka Kallasvuo, Christoffer Taxell, Matti Vuoria and Björn Wahlroos - to the Board. At its inaugural meeting the Board re-elected Olli-Pekka Kallasvuo as Chairman and Jyrki Juusela as Vice Chairman.

In addition, the Annual General Meeting decided to approve the following amendments, as proposed by the Board, to the Articles of Association:
- In accordance with Article 2 of the Articles of Association, Sampo plc's domicile was changed from Turku to Helsinki, where Sampo plc's head office and administrative domicile are already located.
- Paragraph 3 of Article 8 of the Articles of Association and the reference contained therein to the age of Board members at the beginning of their term of office was deleted.
- The reference in Paragraph 2 of Article 17 of the Articles of Association to the publication of a Notice of General Meeting in a newspaper published in Turku was deleted due to the above-mentioned amendment to Article 2 of the Articles of Association.

 

The firm of authorised public accountants, Ernst & Young Oy, was re-elected Auditor.

 

The Annual General Meeting of Sampo Life Insurance Company Limited held on 17 March 2005 decided to simplify the company's administrative structure and to terminate the company's Supervisory Board. The Articles of Association were amended accordingly.

 

On 25 January 2005 Sampo plc's Board of Directors nominated three new members to the Group's Executive Committee. They are Gunnar Rogstad, responsible for the business area If Private, Ivar Martinsen, responsible for the business area If Commercial and Ricard Wennerklint, CFO of If. At the same time the Board also appointed a Group MD Committee, consisting of Björn Wahlroos, Group CEO (Chairman), Kari Stadigh, Group Deputy CEO, Torbjörn Magnusson, President of If, Mika Ihamuotila, President of Banking and Patrick Lapveteläinen, CIO. Ilona Ervasti-Vaintola, Chief Counsel, will act as Secretary.

 

Changes in share capital

The Annual General Meeting of 11 April 2005 authorised the Board of Directors to decide on the repurchase of Sampo's own shares. The authorisation is valid until 11 April 2006. The maximum amount of A shares that can be repurchased is 5 per cent of the company's share capital or of the number of votes attached to all shares. Shares can be bought back either through an offer made to all holders of A shares in proportion to their holdings and on equal terms determined by the Board, or through public trading on the Helsinki Stock Exchange, in which case the shares will not be bought in proportion to the holdings of the shareholders. Shares can be repurchased to be cancelled. Sampo plc did not buy back any of its own shares in the first quarter of 2005.

 

The Annual General Meeting of 11 April 2005 also decided, in accordance with the proposal of the Board of Directors, to pay a dividend of EUR 0.20 per share for 2004.

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On 18 February 2005 Sampo received a disclosure under chapter 2, section 9 of the Securities Markets Act, according to which the Finnish government's holding in Sampo A shares and connected voting rights had decreased below 15 per cent. The Finnish government also informed Sampo that it had agreed to a lock-up of its remaining Sampo shares for 90 days.

 

On 4 January 2005 the Board approved subscription of 2,018,850 A shares with the warrants of Sampo plc's 1998 option programme.  An increase of EUR 8,613,585.49 was received in capital and reserves, including EUR 339,546.20 in share capital which was entered in the Finnish Trade Register on 12 January 2005. Sampo plc's share capital after the increase amounts to EUR 95,157,577.78 and the number of A shares totals 564,581,265 shares. After the increase, the total number of shares of the company, including 1,200,000 B shares, is 565,781,265 shares. 

 

Staff

 

P&C insurance employees are included in the Group's staff from the second quarter of 2004. Under IFRS the Group's staff figures are slightly different from those reported earlier because full-time-equivalent metrics have been adopted. The staff increased by 6,671 employees to 11,748 employees as of the end of March 2005. 35 per cent of the staff worked in banking and investment services, 56 per cent in P&C insurance, 3 per cent in life insurance, 1 per cent in the holding company and 4 per cent in Primasoft. The staff decreased in Finnish banking due to reorganisation of the branch network and increased in the rapidly growing Baltic subsidiaries. The staff decreased marginally in life insurance operations, Primasoft and in P&C operations. The average number of employees during the first quarter of 2005 was 11,736, compared with 5,075 during the first quarter of 2004.

 

Ratings

 

During the first quarter of 2005, the major credit ratings given to Sampo Group companies did not change. On 11 May 2005 the ratings were as follows:

 

Group solvency

 

As of 1 January 2005 rules on calculating solvency for financial conglomerates entered into force. Group solvency consists of the difference between own funds and the minimum requirement set for them. The rules determine the own funds and minimum own funds requirements for subsidiaries and associated companies operating in banking or insurance sector to be calculated according to sectoral rules. In the group solvency calculation funds that cannot be used to cover losses in other group companies are not taken into consideration. Sampo Group applies the consolidation method to calculate its solvency position. The Group's solvency ratio was 182.3 per cent on 31 March 2005.

Banking and investment services

 

The Group's main banking and investment service companies are Sampo Bank plc, which operates in Finland and in all the Baltic countries, Sampo Fund Management Ltd, Mandatum Asset Management Ltd, Mandatum Stockbrokers Ltd, Mandatum & Co Ltd, Mandatum Private Equity Funds Ltd and 3C Asset Management Ltd. Sampo PTE S.A., a pension fund company in Poland, is also included in the accounts of Sampo's banking and investment services. The branch network operates as a distribution channel for a wide range of advisory services and long-term savings products.

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Profit before taxes in the banking and investment services segment rose to EUR 62 million (56), while RoEC was 18.3 per cent in the first quarter. Total operating income was EUR 166 million (158) and expenses were EUR 105 million (102). The quarter was characterised by strong growth in retail lending and long-term savings. Positive consumer sentiment, new investment products and a successful housing loan marketing campaign reinforced the good underlying market situation.

 

 

 

Net interest income rose to EUR 82 million (80), because strong growth in lending volumes more than compensated for tightening of spreads. Comparison figure contains Sampo Credit plc which was merged to Sampo plc in October 2004. The merger reduces net interest income by approximately EUR 3 million per quarter. Growth of loans and advances continued during the period and the total of EUR 15,619 million was 12 per cent higher than one year ago. Housing loans grew by 20 per cent in total and 17 per cent in Finland exceeding market growth, thus Sampo Bank's market share of Finnish housing loans rose to 14.6 per cent (14.3). Driven mainly by consumer credits, other loans to personal customers also grew fast by a rapid 17 per cent. Corporate lending grew by 4 per cent, with the largest increases in overdrafts and finance leases. Geographically, as in 2004, the growth in lending and deposits was the fastest in the Baltic countries. Credit quality remained good. Deposit growth also picked up and deposits increased by 7 per cent to EUR 9,649 million at the end of March. Impairment on loans and receivables was positive and added EUR 4 million (7) to the profit.

 

Net fee and commission income grew to EUR 51 million (48) mainly because of growth in mutual funds and asset management. Mutual fund assets grew by 27 per cent to EUR 7,495 million, with the biggest increase being in equity and balanced funds. Assets include EUR 1.3 billion in Group investments. The shift towards equity products raised gross fees by over 100 basis points, which is approximately 10 basis points higher than  in 2004 on average. Sampo's market share in assets of mutual funds registered in Finland was 20.7 per cent at 31 March 2005.

 

Sampo Bank Group's capital adequacy declined to 10.1 per cent (11.2) because the strong growth in lending increased risk-weighted assets and dividends paid to Sampo plc reduced the capital base. The tier 1 ratio was 6.8 per cent (7.3). Tier 1 capital grew to EUR 992 million (906) although Sampo Bank paid a dividend of EUR 141 million to Sampo plc in March 2005.

 

 

 

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P&C insurance

 

If is the leading property and casualty insurance company in the Nordic region, with insurance operations that also encompass the Baltic countries. If P&C Insurance Holding Ltd is the parent company for property and casualty insurance within the Sampo Group. Business operations are conducted via subsidiaries and branch offices in the Nordic and Baltic countries.

 

 

 

Sampo plc's holding in If P&C was 38.05 per cent in the first quarter of 2004 and the company was treated as an associated company. Accordingly, comparison figures for the first quarter of 2004 are not available.

 

Operating profit deteriorated slightly during the first quarter to EUR 117 million, due to lower investment income. Insurance operations were the main contributor to profit for the period, as a result of lower costs and an improved risk selection. Despite the storms during the first quarter, combined ratios improved in all three major business areas - Private, Commercial and Industrial.

 

Excluding exchange-rate effects premium growth was unchanged, in spite of growth in the business areas of Private and Baltic countries, due to careful risk selection and the application of net pricing.

 

In the first quarter of 2005 the risk ratio improved to 70.0 per cent. Careful risk selection contributed favourably to the results. The claims frequency and the large claims outcome were normal for the period, despite the storms at the beginning of the quarter. The risk ratio in the Private and Commercial business areas improved compared with the year-earlier period, while the storms resulted in a slightly higher risk ratio in the Industrial and Baltic business areas. The favourable result for prior-year claims was due primarily to a revaluation of the claims cost for a few claims, including the tsunami disaster at the end of 2004.

 

Costs amounted to EUR 228 million, with exchange rate effects accounting for less than EUR 2 million. The cost ratio decreased by 1.6 percentage points, due to factors such as reduced staffing and lower commission costs. In particular, costs were reduced in the Finnish operations following a comprehensive cost reduction programme.

 

Investment income was EUR 74 million and the yield on investments amounted to 1.0 percent for the first quarter. The percentage of equities in the portfolio (including derivative instruments) was increased somewhat during the quarter and amounted to approximately 13 percent at the end of the period. The return on the equity portfolio was approximately 2 percent. The duration for interest-bearing assets (84% of the portfolio) was increased but continued to be kept consistently below the target length of 3.5 years and amounted to 1.7 years at 31 March 2005.

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The solvency ratio was 67.2 percent and solvency capital amounted to EUR 2,445 million, as a result of the EUR 249 million dividend paid during March 2005.

 

Life insurance

 

The core of the Group's life insurance operations is Sampo Life, which operates in Finland and in all the Baltic countries. The business area also comprises Sampo T.U. Zycie in Poland.

 

 

Sampo Group's life insurance companies made a profit before taxes of EUR 62 million (12). The investment yield for the first quarter of 2005 was 2.8 per cent at market values (3.5), because of the good performance of equity investments. Net investment income increased to EUR 124 million (92). Both years contain EUR 25 million in investment income on unit-linked contracts. Life insurance operations exceeded their RoEC target 17.5 per cent, achieving an annualised return of 33.3 per cent.

                                   

The market value of investment assets (excl. assets covering unit-linked liabilities) was EUR 5.6 billion (5.6) at 31 March 2005. Fixed income instruments constituted  63 per cent (58) of all investments, equity-linked instruments 32 per cent (36) and real estate 5 per cent (6). At 31 March 2005 Finnish equities accounted for 60 per cent of all direct equity investments, while 6 per cent was invested elsewhere in the euro zone and 34 per cent outside the euro zone.

The solvency capital of Sampo Life was EUR 932 million (958) and amounted to 19.4 per cent of technical reserves on own account (19.9). The company paid a dividend of EUR 100 million in March 2005 to the parent company, Sampo plc.

 

The premium income of Sampo Group's life insurance companies was at the same level as a year earlier and amounted to EUR 131 million (130). The Baltic life insurance companies continued to grow, with premiums rising to EUR 3.9 million (3.6).  The growth of unit-linked premiums slowed down to 1 per cent, with premiums of EUR 76 million (75), which was 58 per cent of total premiums (58). Sampo Life's market share in unit-linked insurance weakened to 22.2 per cent (27.8). Sampo Life's overall market share in Finland was 16.4 per cent (16.9).

 

 

 

 

 

 

 

 

 

 

 

 

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Other

 

The operations of Sampo plc (the holding company) and Primasoft are reported under this heading. Sampo plc's main function is to own and control the subsidiaries engaged in insurance, banking and investment services. Primasoft provides IT services to various companies in Sampo Group.

 

 

 

The segment's result before taxes was a loss of EUR 12 million (122). The comparison figure contains EUR 95 million in sales gains from the sale of shares in Skandia held by Sampo plc, and Sampo plc's share of If's profits, EUR 40 milllion, as If was still treated as an associated company in the first quarter of 2004.

 

During the first quarter of 2005, Sampo plc received dividends from its subsidiaries totalling EUR 509 million. Banking and investment services companies paid a dividend of EUR 160 million, If P&C Insurance Holding Ltd paid EUR 249 million and Sampo Life paid EUR 100 million.

 

Sampo plc's balance sheet total was EUR 4.1 billion. Of this amount, holdings in banking and investment services companies accounted for EUR 0.9 billion and holdings in insurance companies for EUR 2.4 billion. Liabilities include the following debt instruments in addition to short term operational financing - a EUR 600 million subordinated note, senior notes to the amount of EUR 300 million and a bank loan of EUR 200 million. The bank loan will be paid back in June 2005 earlier than originally planned. At current market rates Sampo plc is liable for interest payments on the above instruments of approximately EUR 10 million per quarter.

 

Primasoft has a minor impact on the profit or loss of the Other segment.

 

At the end of March 2005, Sampo plc had 83 employees (81) and Primasoft had 524 employees (582).

 

Outlook for the rest of 2005 

Uncertainties in the world economy are highlighted in capital markets, which have turned more volatile in the weeks following the end of March. However, these developments are not expected to significantly affect Sampo Group's results for 2005 barring a considerable downturn.

Sampo Group is targeting a RoEC of at least 19 per cent and its profitability is expected to remain good in 2005. However, significant one-off items similar to those in 2004 are not anticipated.

 

Sampo Group's banking and investment services are aiming to grow in selected product areas, including long-term savings, consumer credits and housing loan products. It is expected that profitability will remain good and that credit quality will continue to be excellent. The importance of the Baltic markets is emphasized by high growth and improving profitability. Banking and investment services are targeting a RoEC of 20 per cent.

 

 

 

 

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The P&C insurance subsidiary, If, is expected to reach its combined ratio target of below 95 per cent for the full year 2005. The company is targeting a RoEC of 17.5 per cent. If is in the process of introducing new health insurance and care products in the Nordic markets.

The profitability of Sampo Group's life operations is highly dependent on capital markets. Life insurance is expected to achieve its RoEC target of 17.5 per cent unless conditions in investment markets turn significantly worse. The growth of the Baltic subsidiaries is expected to continue. Strong market positions in focus areas, particularly in unit-linked insurance, continue to be a key priority.

 

The parent company, Sampo plc, will report a loss of approximately EUR 14 million per quarter, mainly due to interest payments on the financing associated with the If acquisition in 2004.

 

 

SAMPO PLC

Board of Directors

 

For more information, please contact:

Peter Johansson, CFO, tel. +358 10 516 0010

Jarmo Salonen, Head of Investor Relations, tel. +358 10 516 0030

Hannu Vuola, Head of Group Communications, tel. +358 10 516 0040

 

An English-language telephone conference for investors and analysts will be held at 4.30 p.m. Please call +44 (0) 20 7162 0181 (UK/European) or +1 334 323 6203 (North American). Password: SAMPO.

 

The conference can also be followed from a direct transmission on the Internet at www.sampo.com/ir

A recorded version will later be available at the same address.

 

Sampo will publish the second quarter 2005 interim report on 10 August 2005.

 

DISTRIBUTION:

Helsinki Stock Exchange

The principal media

Financial Supervision

www.sampo.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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*) Group solvency is calculated according to the consolidation method defined in Chapter 3 of the Act on the Supervision of Financial and Insurance Conglomerates, which entered into force on 1 January 2005. Solvency ratio is defined as the ratio of own funds to the sum of minimum requirements calculated under sectoral rules.                    

                       

**) The net investment income of other business includes the income from If Group, accounted for by the equity method, for the first quarter of 2004                      

                       

***) The dilution effect has been calculated as if all the remaining subscription rights (774 860/the bond loan with warrants of 1998 and 5,199,000/the option programme of 2000 at the end of March, 2005) would have been realised. One subscription right entitles to subscribe 5 shares.                      

                       

In calculating the key figures the tax corresponding to the result for the accounting period has been taken into account. The valuation differences of investment property and held-to-maturity debt securities have been taken into account in return on equity, equity/assets ratio and net asset value per share. A deferred tax liabilities has been deducted from valuation differences.                   

                       

The key figures for Banking and Investment Services and the holding company have been calculated according to regulation 20/420/98 of the Financial Supervision. The key figures for the insurance business have been calculated according to the decree of the Ministry of Finance and the specifying instruction 23/09/2002 of the Ministry of Social Affairs and Health.                      

 

 

 

 

 

 

 

 

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CONSOLIDATED INCOME STATEMENT BY SEGMENT FOR THREE MONTHS ENDED 31 MARCH 2005

 

 

 

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CONSOLIDATED INCOME STATEMENT BY SEGMENT FOR YEAR ENDED 31 DECEMBER 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CONSOLIDATED INCOME STATEMENT BY SEGMENT FOR THREE MONTHS ENDED 31 MARCH 2004

 

 

MOVEMENTS IN CAPITAL AND RESERVES