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Sampo Group's interim report for January-June 2012

Good first half in banking, great in insurance

Sampo Group's profit before taxes for January - June 2012 rose to EUR 804 million (756). The total comprehensive income for the period, taking changes in the market value of assets into account, amounted to EUR 863 million (378).

  • Earnings per share increased to EUR 1.23 (1.13) and mark-to-market EPS amounted to EUR 1.54 per share (0.67). The return on equity for the Group was 19.1 per cent (8.6).
  • Net asset value per share amounted to EUR 15.49 (14.05). A dividend of EUR 1.20 per share paid in the reporting period lowered the net asset value. The fair value reserve after tax on the Group level increased to EUR 489 million (355).
  • The technical result of the P&C insurance operations was excellent. The combined ratio for the first half of 2012 was 89.4 per cent (92.7). The profit before taxes increased to EUR 442 million (422). Mark-to-market result rose to EUR 451 million (123). Return on equity increased to 34.2 per cent (9.4).
  • Sampo's share of the associated company Nordea's profit for the first half of 2012 was EUR 326 million (294). In the first half of 2012 Nordea maintained good business momentum and increased return on equity despite the market conditions.
  • Profit before taxes for the life insurance operations was EUR 65 million (84). The mark-to-market result was EUR 105 million (-8). The return on equity amounted to 23.0 per cent (-1.6).
KEY FIGURES 1-6/2012 1-6/2011 Change, % 4-6/2012 4-6/2011 Change,%
EURm            
Profit before taxes 804 756 6 440 369 19
  P&C insurance 442 422 5 251 200 25
  Associate (Nordea) 326 294 11 168 142 18
  Life insurance 65 84 -23 32 40 -22
  Holding (excl. Nordea) -29 -42 -30 -10 -13 -18
Profit for the period 689 634 9 372 310 20
      Change     Change
Earnings per share, EUR 1.23 1.13 0.10 0.66 0.55 0.11
EPS (incl. change in FVR) EUR 1.54 0.67 0.87 0.37 0.26 0.11
NAV per share, EUR  *) 15.49 14.05 1.44 - - -
Average number of staff (FTE) 6,833 6,881 -48 - - -
Group solvency ratio, %  *) 151.0 138.6 12.4 - - -
RoE, % 19.1 8.6 10.5 - - -

*) comparison figure from 31.12.2011

The figures in this report are not audited. Income statement items are compared on a year-on-year basis whereas comparison figures for balance sheet items are from 31 December 2011 unless otherwise stated.

Sampo follows the disclosure procedure enabled by the Finnish Financial Supervisory Authority (Standard 5.2b) and hereby publishes its Interim Report attached as a PDF file to this stock exchange release. The Interim Report is also available at www.sampo.com/result.

Second quarter 2012 in brief

Sampo Group's second quarter 2012 profit before taxes rose to EUR 440 million (369). Earnings per share amounted to EUR 0.66 (0.55). Mark-to-market earnings per share were EUR 0.37 (0.26).

 

Net asset value per share decreased in the second quarter of 2012 to EUR 15.49 from EUR 16.61 at the end of March 2012. A dividend per share of EUR 1.20 was paid in April 2012.

 

Combined ratio in the P&C operation was excellent at 86.4 per cent (91.1) for the second quarter. Profit before taxes increased to EUR 251 million (200). Share of the profits of the associated company Topdanmark amounted to EUR 16 million (3).

Sampo's share of Nordea's second quarter 2011 net profit rose to EUR 168 million (142). Nordea's execution of the new strategy (New Normal) proceeds well and second quarter 2012 RoE increased to 12.5 per cent (11.7).

 

Profit before taxes for the life insurance operations amounted to EUR 32 million (40). Premiums written increased to EUR 234 million from EUR 228 million in the second quarter of 2011.

BUSINESS AREAS

P&C insurance

As a result of extremely strong operating profitability in January-June 2012, profit before taxes for P&C insurance increased to EUR 442 million (422) despite the lower net income from investments due to a one-off sales gain of EUR 75 million in the comparison period. Return on equity (RoE) increased significantly to 34.2 per cent (9.4). Fair value reserve increased from the year end to EUR 223 million (139) at the end of June 2012.

 

Both risk ratio and combined ratio improved significantly in January-June 2012 to 66.0 per cent (69.4) and 89.4 per cent (92.7), respectively. EUR 81 million (76) was released from technical reserves relating to prior year claims.

 

Technical result increased to EUR 282 million (228). Insurance margin (technical result in relation to net premiums earned) improved to 13.1 per cent (11.1).

 

Topdanmark's profit contribution for January-June 2012 was EUR 28 million (3). At the end of June 2012 If P&C held altogether 3,147,692 Topdanmark shares, corresponding to 24.4 per cent of the votes and 22.9 per cent of the shares.

Investment return mark-to-market for January-June 2012 was 3.0 per cent (1.7). Duration for interest bearing assets was 1.1 years (1.2) and average maturity 2.3 years. Fixed income running yield was 3.8 per cent (4.1).

On 30 June 2012 If P&C Insurance Holding Ltd entered into an agreement of selling the Russian subsidiary Region. The transaction is still subject to the approvals of relevant regulatory authorities.

Associated company Nordea Bank

On 30 June 2012 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.25 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 7.40 per share. The closing price as at 30 June 2012 was EUR 6.77.

 

In the first half of 2012 Nordea maintained good business momentum and increased return on equity despite continued pressure on interest rates, financial turmoil and the slowdown in European economic activity. Core tier 1 capital ratio increased by 0.8 percentage point to 11.8 per cent from a year ago.

Operating profit increased 6 per cent from the previous quarter to EUR 1,099 million. Net profit increased 6 per cent compared to the previous quarter to EUR 821 million, corresponding to a return on equity of 12.5 per cent.

The reduction in staff numbers which was announced last autumn has continued according to plan during the second quarter. The number of employees (FTEs) has been reduced by around 2,200 from the end of the second quarter 2011 and by almost 600 compared to the end of the first quarter 2012. This has resulted in an annualized gross reduction in the staff expenses of approx. EUR 160 million.

Net loan loss provisions were EUR 217 million and the loan loss ratio was 26 basis points (26 basis points in the previous quarter).

The Group's core tier 1 capital ratio, excluding transition rules, was 11.8 per cent at the end of the second quarter, a strengthening by 0.2 percentage points from the end of the previous quarter. Improved capital ratios have been achieved by strong profit generation and a decrease in risk-weighted assets (RWA).

Life insurance

Profit before taxes in life insurance for the first half of 2012 decreased to EUR 65 million (84). The profit was burdened by the lowering of the discount rates used to discount with-profit reserves. The total comprehensive income for the period, taking changes in the market value of assets into account, rose to EUR 105 million (-8). Return on equity (RoE) rose to 23.0 per cent (-1.6).

 

Investment return mark-to-market during January - June 2012 was 3.9 per cent (1.3). The fair value reserve increased to EUR 268 million from EUR 214 million at the end of 2011. At the end of June 2012 the duration of fixed income assets was 1.8 years (2.1) and average maturity 2.2 years.

Mandatum Life Group's Solvency I position remained strong and solvency ratio was 23.5 per cent (20.9) at the end of June 2012. Mandatum Life Group's total technical reserves amounted to EUR 7.6 billion (7.3), of which unit-linked reserves accounted for 3.4 billion (3.1). Mandatum Life has increased its with-profit technical reserves over the last years with EUR 117 million due to low level of interest rates. The unit-linked reserves' share of total technical reserves increased to 45 per cent (42), which is higher than ever before.

Holding

The segment's profit before taxes rose to EUR 297 million (252), of which EUR 326 million (294) relates to Sampo's share of Nordea's first half 2012 profit. The segment, excluding share of Nordea's profit, reported a loss of EUR 29 million (-42).

In the first half of 2012 no dividends were paid to Sampo plc by its insurance subsidiaries. A dividend of EUR 224 million was received on 3 April 2012 from the associated company Nordea.

Sampo plc's debt financing on 30 June 2012 amounted to EUR 2,300 million (2,329) and interest bearing assets including bank accounts to EUR 585 million (1,121). During the first half of 2012 the net debt increased EUR 507 million to EUR 1,715 (1,208). Gross debt to Sampo plc's equity was 36.8 per cent (34.6).

OUTLOOK

 

Outlook for the rest of 2012

 

Sampo Group's business areas are expected to report good operating results for 2012. However, the mark-to-market results are, particularly in life insurance, highly dependent on capital market developments.

 

P&C insurance operations are expected to reach a combined ratio of 89 - 92 per cent for the full year 2012 and thus achieve the long-term target of below 95 per cent. 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. As a financial group the major sources of profitability and its variation for Sampo Group are market, credit and insurance risks. Their contributions to the Group's Economic Capital - used as an internal basis for capital needs - currently represent normal levels of 38 per cent, 36 per cent and 14 per cent, respectively. For more information on Sampo Group's risk exposures and their management see www.sampo.com/corporate-governance/risk-management and the risk management section of the 2011 Annual Report at www.sampo.com/annualreport.

Abrupt changes in the business environment or major unforeseen events may always impact the profitability of a company. Adverse macro economic developments, such as current Euro crisis, and slow growth in Europe are major sources of uncertainty which may escalate in ways that can affect the Group's activities unfavorably. This is, however, mitigated by the fact that Sampo Group companies do not have direct exposures in sovereigns under pressure and have small exposure to banking sector outside the Nordic region.

  
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

Essi Nikitin, IR Manager, tel. +358 10 516 0066

Maria Silander, Press Officer, tel. +358 10 516 0031

Sampo will arrange a Finnish-language press conference (Savoy, Eteläesplanadi 14, Helsinki), today at 12:30 pm Finnish time. An English-language telephone conference for investors and analysts will be arranged at 4 pm Finnish time (2 pm UK time). Please call +44 (0)808 109 0700 (Europe), +1 866 966 5335 (North America) or +358 (0)800 914 672 (Finland Toll Free). Please be ready to state the conference name 'Sampo plc Q2 Release'.

The telephone conference can also be followed from a direct transmission on the Internet at www.sampo.com/result. A recorded version will later be available at the same address.

In addition Supplementary Financial Information is available at www.sampo.com/result.

Sampo will publish the third quarter 2012 interim report on 9 November 2012.

Distribution:
NASDAQ OMX Helsinki
The principal media
Financial Supervisory Authority
www.sampo.com

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