IR Blog

Nordic Capital and Sampo have agreed to acquire in total 17.47 per cent of Norwegian Finans Holding, which is the parent company of Bank Norwegian. The transaction price is NOK 68 per share, in total NOK 2,218 million.

Completion of the acquisition will occur in two tranches, whereby the first (9.97%) will be acquired with expected settlement on August 26, 2019. The second tranche (7.50%), which is subject to approval by the Norwegian Financial Supervisory Authority, will be acquired once regulatory approval has been obtained.

Following completion of the whole transaction, Sampo will hold approximately 6,3 per cent of the company. The size of Sampo's investment will be EUR 80 million.

Bank Norwegian offers, among other products, consumer credit and deposit accounts via its digital platform and has over 1.6 million clients in Norway, Sweden, Finland and Denmark. In 2018, Bank Norwegian’s total income was NOK 4.7 billion or approximately EUR 465 million. Norwegian Finans Holding is listed on the Oslo Stock Exchange.

This is the sixth financial investment made by the parent company Sampo plc in the Nordic fintech and financial sector where we see buy & build opportunities characteristic to Sampo’s investment style. Previously we have invested in Asiakastieto, Nets, Saxo Bank, Nordax and Intrum. In total, Sampo has invested over one billion euros in these companies.

Nordic Capital, one of the leading private equity investors in the Nordics, is a familiar investor partner to Sampo since we made a joint bid offer for Nordax in Spring 2018. Nordic Capital is also the largest shareholder in Intrum.

Nordic Capital’s press release regarding the transaction

The first half of the year 2019 was very mixed for Sampo Group. Our insurance businesses, once again, reported strong results but results for Nordea remained at weak level.

* Comparison figure from 31 December 2018
The figures 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 2018 unless otherwise stated.

If reported both strong top-line growth and strong results. Profit before taxes increased by 6 per cent to EUR 440 million from EUR 415 million a year ago. On the top-line, premiums growth was 4.3 per cent in local currency. Growth was positive in all markets and business areas, but particularly strong in BA Industrial, 12.1 per cent, and in Norway, 8.7 per cent.

The combined ratio for if improved to 84.7 per cent from 85.8 per cent. This was the best-ever combined ratio for the January - June period in If’s history. Thanks to the strong performance, we upgraded our full-year combined ratio guidance to 84-86 per cent from 85-88 per cent.

For Topdanmark, the good momentum seen in the first quarter continued in the second quarter as well. Profit before taxes for January-June was EUR 146 million (105) in Sampo’s consolidated accounts and the combined ratio improved to 79.0 per cent (84.1). This was one of the best-ever combined ratios for January - June in Topdanmark’s history.

Premiums increased by 2.6 per cent in both non-life and life insurance businesses, although in life insurance, premiums decreased in the second quarter.

Topdanmark's good performance is the result of determined improvement in a number of areas, including improved product mix and underwriting together with the good progress in digitization and efficiency programs. At the moment, already 95 per cent of all claims can be reported digitally and almost half of all claims reported digitally are automated fully or partially.

Topdanmark updated it’s profit forecast model for the full-year 2019. According to the profit forecast model, the combined ratio excluding run-offs would be 85-86 per cent (previously 86-87 per cent). The net profit for the full-year 2019 would still be DKK 1.25-1.35 billion.

For Mandatum Life, the profit for first half of the year was one of the best periods in the company’s history, excluding the EUR 197 million non-recurring profit item related to the Danske Bank co-operation in the comparison period. Profit before taxes amounted to EUR 137 million (313 / 116 without the Danske contribution).

Net investment income, excluding income on the unit-linked contracts, increased to EUR 203 million (123). Mandatum Life’s technical reserves amounted to EUR 11.6 billion at the end of June, from which unit-linked reserves were EUR 7.5 billion, the highest ever figure. Reserves related to the higher guarantees (4.5 and 3.5 per cent) continued to shrink as planned and amounted to EUR 2.3 billion, EUR 130 billion less than at the end of 2018. With-profit contracts with higher guarantees require lots of capital. Thus, the decline of those reserves improves Mandatum Life’s ability to pay dividend to the parent company Sampo plc.

Extra dividend in the form of Nordea shares

Sampo’s Board today resolved on the distribution of an extra dividend in the form of Nordea shares. Each shareholder will receive 1 Nordea share for each 10 Sampo shares held. Fractional entitlements to Nordea shares compensated to shareholders in cash.

The ex-dividend date is 8 August 2019 and the record date is 9 August 2019. In order to receive the extra dividend, the shareholder needs to hold Sampo share at the end of 7 August 2019. The payment date is 12 August 2019 for the share dividend and 16 August 2019 for the cash compensation.

The background for the plan relates purely on Sampo’s solvency, which is decreased due to the increased capital requirement for Sampo’s Nordea ownership. Since the end of 2018, the capital requirement has increased for over EUR 800 billion.

The Group’s solvency is currently calculated under two different frameworks, the conglomerate rules (FICO) and Solvency II -directive. By distributing Nordea shares as dividend, Sampo’s ownership in Nordea will decrease below 20 per cent, which would lead to withdrawing from the conglomerate rules calculation. This is still subject to the formal approval of the Finnish Financial Supervisory Authority (FSA). Sampo expects to receive the approval before the Q3 results release date.

After the approval of the FSA, the Group’s solvency would be calculated only by the Solvency II rules and Nordea would be treated as normal equity investment instead of a subsidiary.

The changes in solvency rules would significantly improve Sampo’s solvency. At the end of June 2019, Sampo’s Solvency II ratio was 137 per cent. If Nordea would have been treated as an equity investment at the end of June, Sampo’s pro forma Solvency II ratio would have been 170 per cent. Sampo wants to maintain strong solvency in order to act more freely in the investment markets. Strong solvency also supports Sampo’s ability to pay dividend.

The consolidation of Nordea as an associate in Sampo’s Financial Statement (IFRS) will remain unchanged. Thus, Sampo’s share of Nordea’s net result will be included in the Group’s results.

In total, approximately 55 million Nordea shares will be distributed as dividend. Sampo will report a capital loss calculated from the difference between the value of the Nordea share on the dividend payment date and the book value of Nordea share (EUR 8.24 at the end of June 2019) in Sampo’s balance sheet.

Taxation of the extra dividend

The Finnish Tax Administration has published a general guide regarding the taxation of dividends in kind.

Guide (www.vero.fi) 

In Finland, a share dividend is taxed similarly as cash dividend. The value of the share dividend would be calculated based on the volume weighted average price of the Nordea share on the payment date 12 August 2019, which is the base of taxation.

Sampo will pay the Finnish transfer tax of 1.6 per cent resulting from the distribution of the share dividend on behalf of shareholders. However, transfer tax does not have to be paid if the payable transfer tax is less than 10 euros per beneficiary. Example: based on 6 August 2019 closing price of Nordea share (EUR 5.655), there would be no transfer tax payable if the amount of share dividends received does not exceed 110 Nordea shares, which would require ownership of 1,100 Sampo shares.

The decision to pay the transfer tax payable on behalf the shareholders is part of the dividend distribution decision. Thus, according to the Tax Administration’s guides, the transfer tax is taxable dividend income for both resident and nonresident beneficiary. The transfer tax will be included in the acquisition cost of the shares when those are being sold.

Since tax practices vary depending on the domicile and the legal status of the shareholder, we kindly recommend our non-resident shareholders to turn to their own tax advisors and, if necessary, the Finnish Tax Administration for questions related to Finnish taxation.

Sampo’s Board has today announced that it plans to resolve on the distribution of an extra dividend in its meeting scheduled for 7 August 2019.

The extra dividend would be distributed in the form of Nordea shares so that each shareholder would receive one Nordea share for each ten Sampo shares held. Fractional entitlements to Nordea shares resulting from the distribution ratio would not be distributed in the form of shares, but an equivalent amount would be compensated to shareholders in cash.

Providing that the Board resolves to distribute the extra dividend on 7 August 2019, the ex-dividend date would be 8 August 2019 and the record date would be 9 August 2019. The payment date would be 12 August 2019 for the share dividend and 16 August 2019 for the cash compensation.

Why does Sampo plan to distribute an extra dividend in the form of Nordea shares?

The background for the plan relates purely on Sampo’s solvency. Capital requirements for Sampo’s Nordea ownership has increased due to Nordea’s re-domiciliation from Sweden to Finland. The capital requirements increased in the spring 2019 and will increase further in the beginning of July 2019. The increase in capital requirements has decreased Sampo’s solvency significantly. However, the actual underlying risk related to Nordea ownership has not changed.

If the Board resolves to distribute an extra dividend in the form of Nordea shares, Sampo’s ownership in Nordea would decrease below 20 per cent, which would significantly decrease the capital requirements.

Why did the Board announce that it will plan to resolve on the matter on its meeting in August, instead of resolving on the distribution of an extra dividend now?

Sampo has over 120,000 shareholders. Thus, the distribution is a significant technical operation for different parties. We want to give the banks, the authorities and Euroclear time to prepare so that the distribution would be executed without any technical problems.

Would the decrease in Nordea ownership mean that Sampo’s view on Nordea has changed?

No, it would not. The distribution of an extra dividend in the form of Nordea shares would be purely a technical measure to improve Sampo’s solvency.

Is the planned extra dividend part of Sampo’s dividend policy?

No. The distribution of an extra dividend in the form of Nordea shares would be purely a technical measure to improve Sampo’s solvency.

Why is it important for Sampo to have strong solvency?

Sampo wants to maintain strong solvency to be able to operate more freely in the investment markets and, for example, participate in M&As. Strong solvency also supports Sampo’s ability to pay dividend.

How much would the distribution of an extra dividend in the form of Nordea shares improve Sampo’s solvency?

At the end of March 2019, Sampo’s Solvency ratio according to the Solvency II directive amounted to 126 per cent. Taking the hybrid capital of EUR 500 million issued in May 2019 and the planned distribution of an extra dividend into account, the solvency ratio would have been approximately 169 per cent at the end of March 2019.

Why does not Sampo just sell the equivalent number of Nordea shares?

We believe that there’s much more potential in Nordea. Thus, we don’t want to sell the shares. It would be difficult to sell a position this large and it could send a negative signal to the markets. By distributing the shares as dividend, our shareholders could decide themselves what to do with the shares.

How would the decrease in Nordea ownership below 20 per cent affect Sampo’s financial reporting?

The decrease in Nordea ownership below 20 per cent would affect Sampo’s solvency calculations. In the future, the Group’s solvency would be calculated only by Solvency II directive and Nordea shares would be treated as normal equity investment. The Group’s solvency would no longer be calculated by the conglomerate rules (FICO).

However, the consolidation of Nordea as an associated company in Sampo Group’s financial statement (IFRS) would remain unchanged.

The changes/impacts mentioned above are subject to authorities’ decisions.

Why would Nordea be still treated as an associated company in Sampo’s financial statement?

Solvency II, conglomerate and IFRS rules are independent, separate regulatory frameworks. At the moment, according to the overall assessment, the consolidation of Nordea as an associated company in IFRS statements would remain unchanged. 

How would the distribution of an extra dividend affect Sampo’s results?

Sampo would report a capital gain/loss calculated from the difference between the share dividend and the book value of Nordea share in Sampo’s balance sheet. The gain/loss would not be cashflow-effective.

For example, if the value of the share dividend was EUR 7.00 on the payment date and the book value of Nordea in Sampo’s balance sheet was EUR 8.10 (31 March 2019), Sampo would report a capital loss of EUR 1.10 per distributed Nordea share.

How many Nordea shares would Sampo distribute?

Sampo would distribute approximately 55 million Nordea shares, corresponding 1,4 per cent of Nordea’s total stock. After the distribution, Sampo would hold approximately 19,9 per cent of Nordea.

As a shareholder, do I have to do something in order to receive the extra dividend?

No, you don’t. In order to receive the extra dividend, shareholder would need to hold Sampo share at the end of 7 August 2019 when the Board plans to resolve on the distribution.

I hold less than 10 Sampo shares. Would I receive Nordea shares as dividend?

No, you would not. Fractional entitlements to Nordea shares would be compensated in cash.

I hold 19 Sampo shares. What would be my dividend?

You would receive one Nordea share for the 10 Sampo shares you hold. For the rest 9 shares, the dividend would be compensated in cash.

What would be the value of the cash compensation for fractional entitlements?

The cash compensation would be based on the value of the share dividend, which would be calculated from volume weighted average price of Nordea share on the date when the share dividend is withdrawable, 12 August 2019. If the volume weighted average price of Nordea would, for example, be EUR 7.00 on that day, the value of the cash compensation would be EUR 0.70 (7.00/10).

In order to receive the extra dividend, when should I hold Sampo share at the latest?

The Board plans to resolve on the distribution on 7 August 2019. In order to receive the extra dividend, at least one Sampo share must be held at the end of that day.

I hold shares at the end of 7 August 2019 but I sell them before the dividend is paid. Would I receive the dividend?

Yes.

How would the share dividend be paid?

The share dividend would be paid to the same account in which the shareholder’s Sampo shares are held.

On what stock exchange are the Nordea shares listed?

The shares that are planned to be distributed are listed on Nasdaq Helsinki.

Why is the cash compensation for fractional entitlements to Nordea shares paid later than the share dividend?

The value of the cash compensation is based on the volume weighted average price of Nordea on the payment day on 12 August 2019. The cash compensation cannot be paid before the value of the share dividend is clear.

Taxation

The following answers regarding taxation apply to shareholders that are based in Finland. Tax treatment for share dividends received by foreign shareholders are, in principle, taxed in the same way as cash dividends. Since tax practices vary depending on the domicile and the legal status of the shareholder, we kindly recommend our foreign shareholders to turn to their own tax advisors and, if necessary, to the Finnish Tax Administration for questions related to Finnish taxation.

How would the share dividend be taxed?

In Finland, share dividends are taxed in the same way as cash dividends. Because the dividend would be paid in the form of shares, the bank could not collect the withholding tax. Instead, the shareholders must take care of the tax payment by themselves.  

What would be the taxable value of the share dividend?

The taxable value of the share dividend would be calculated based on the volume weighted average price of the Nordea share on the payment date 12 August 2019.

How would the cash compensation for the fractional entitlements to Nordea shares be taxed?

The cash compensation would be taxed in the same way as cash dividends. Also, the withholding tax would be collected in the same way.

Would the share dividend be subject to the Finnish transfer tax?

Yes, the Finnish transfer tax of 1.6 per cent would become payable but Sampo would pay it on behalf of the shareholders. No measures would be required from the shareholders.

Could I sell the Nordea shares I receive as a dividend?

Yes.

If I sold the Nordea shares I received as a dividend, what would be the acquisition price of the share?

The acquisition price of the share would be calculated based on the volume weighted average price of the Nordea share on the payment date 12 August 2019.

If I sold the Nordea shares I received as a dividend, what would be the acquisition time of the shares?

The acquisition time would be the payment date 12 August 2019.

More information and instructions are published closer to the distribution at www.sampo.com. The Finnish Tax Administration will publish more tax instructions later at www.vero.fi/en.

Sampo’s businesses performed well in the first quarter of the year. The Group’s profit before taxes increased by 7 per cent to EUR 475 million compared to EUR 445 million a year ago.

The state of the economy has remained cautiously positive in Sampo’s home markets, enabling a positive operating environment for our businesses. In addition, after the sharp decline at the end of last year, the equity markets have rebounded, which has supported our investment returns. In fact, the total comprehensive income, taking changes in the market value of assets into account, increased to EUR 561 million compared to EUR 108 million a year ago.

However, interest rates have remained at low levels and interest rate forecasts have been cut around the world. This still makes it difficult to find good investment returns.

The figures 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 2018 unless otherwise stated.

Another boring (good) quarter for P&C insurance businesses

If’s performance was, once again, strong, thanks to the strong operative efficiency and technical excellence. In general, the winter season was quite normal in If’s home markets.

If’s profit before taxes amounted to EUR 198 million (193) and combined ratio remained unchanged from a year ago at 86.5 per cent. Both cost ratio and expense ratio improved. Adjusted for currency, gross written premiums growth was strong at 3.9 per cent. The growth was driven by increased retention levels and increased number of customers. The growth was strongest in Norway, 10.5 per cent. In Denmark, the growth was 6.2 per cent and in Sweden, 3.2 per cent. However, in Finland, where the price competitions remained tight, premiums declined by 2,5 per cent.

We upgraded our guidance for If’s combined ratio for 2019 to 85 - 88 per cent. Previously the guidance was 86 - 90 per cent.

Topdanmark had a very strong start for the year 2019. Profit before taxes strengthened to EUR 92 million from EUR 60 million a year ago. The combined ratio improved to 78.2 per cent from 83.7 per cent.

In addition, Topdanmarks top line continued to grow. Premiums increased by 2.6 per cent in non-life insurance and by 18.6 per cent in life insurance.

The digitization of Topdanmark’s businesses and efficiency improvements proceed well. Already 95 per cent of all claims can be reported digitally and 47 per cent all claims reported digitally are automated fully or partially.

Thanks to the strong performance in the first quarter, Topdanmark upgraded its full-year guidance. The post-tax profit forecast model for 2019 is now DKK 1,250 – 1,350 million (previously DKK 1,000 – 1,100 million). The combined ratio without run-off profits for 2019 is now expected to be 86 – 87 per cent (89 – 90). The assumed premium growth for non-life insurance continues to be higher than the growth of 1.7% in 2018.

Topdanmark’s share price has continued to climb higher. At the end of March, the market value of the Topdanmark shares held by Sampo was EUR 1.87 billion. The original average purchase price was approximately EUR 600 million. In addition, Sampo has received total dividends worth EUR 191 million from Topdanmark during the past two years.

Good start for Mandatum Life, tame results for Nordea

Mandatum Life benefited from the strong performance in the equity markets in the first quarter of the year. Profit before taxes remained at excellent level and amounted to EUR 72 million (73).

Net investment income, excluding income on unit-linked contracts, increased to 126 million (72). The largest single item effecting investment returns was the acceptance of the takeover offer for Amer Sports. Before the acceptance, Mandatum Life held approximately 2.4 per cent of the total shares of Amer Sports.

Mandatum Life’s technical reserves amounted to EUR 11.6 billion compared to EUR 11.2 billion at the end of 2018. Unit-linked reserves increased to EUR 7.4 billion, corresponding to 64 per cent (62) of total technical reserves. With profit reserves amounted to EUR 4.2 billion.

With profit reserves related to the higher guarantees of 4.5 and 3.5 per cent continued to shrink and decreased by EUR 74 million compared to the end of 2019. With profit reserves require lots of capital. Thus, the decline of those reserves improves Mandatum Life’s ability to pay dividend to the parent company Sampo plc.

Sampo’s share of Nordea’s net profit decreased to EUR 83 million from EUR 165 million a year ago. In part, the results were burdened by the provision of EUR 95 for AML related matters, that Nordea booked in the first quarter.

Nordea’s tame performance during the beginning of the year has reflected to the bank’s share price, which has had a negative impact on Sampo’s NAV per share as well.

In 2019, Sampo has received internal dividends worth EUR 828 million from its subsidiaries and associates. Mandatum Life paid a dividend of EUR 150 million in March. In April, Sampo received dividends of EUR 594 million from Nordea and 84 million from Topdanmark. If usually pays dividend towards the end of the year.

Potential extra dividend in Nordea’s shares to be decided before the end of 2019

Sampo’s Annual General Meeting held on 9 April 2019 decided to pay a dividend of EUR 2.85 per share. The dividend has now been increased for 10 years in a row.

In addition to the ordinary dividend, the AGM authorized the Board, in its discretion, on the distribution of an extra dividend up to EUR 500 million (EUR 0.9 per share) either in cash and/or in financial instruments.

The authorization is meant to be one available tool that can be used to counter the increasing capital requirements. If the extra dividend was decided to be paid in Nordea’s shares held by Sampo and Sampo’s ownership in Nordea thereby decreased to below 20 per cent, it would significantly improve Sampo’s solvency ratio. The exact timetables have not yet been decided upon, but the potential actions are expected to be taken before the end of 2019. Read more about the potential extra dividend from the previous IR blog post. 

Read more about Sampo’s results for January-March 2019 

Sampo’s Board has today proposed that the Annual General Meeting authorizes the Board to resolve, in its discretion, on the distribution of an extra dividend. The extra dividend could be paid either in cash and/or in financial instruments (including, but not limited to, shares and/or other securities) held by the company. The proposed authorization for the total dividend is up to EUR 500 million (i.e. EUR 0.90 per share).

Why does the Board propose this kind of authorization?

The background for this proposal is the increasing capital requirement for Sampo regarding its ownership in Nordea. This has been disclosed earlier.

Extract from Sampo’s Results for 2018:

“In the fourth quarter of 2018 Nordea’s Risk Exposure Amount (REA) increased EUR 35 billion to EUR 156 billion stemming mainly from migration of existing items from Pillar 2 to Pillar 1 due to the re-domiciliation of the bank from Sweden to Finland. At the same time, the systemic risk buffer (SRB) decreased temporarily to zero per cent.

As a consequence of these two effects, the nominal capital requirement for Sampo was EUR 3,779 million on 31 December 2018. However, the SRB has to be applied in Finland starting 1 January 2019 (2 per cent in the first half of 2019 and 3 per cent from 1 July 2019) which will increase Nordea’s capital requirement for Sampo accordingly in 2019 and decrease the Group solvency ratio. As the situation develops Sampo will be looking into different measures to counter the impact.”

The proposed authorization is one conceivable measure, among other measures, for the Board to counter the impact of the changes in the capital requirement. Distribution of extra dividend in the form of financial instruments would increase Sampo’s solvency.

Why this authorization was not proposed in the original Notice to the AGM?

Sampo’s Board looks into different measures to counter the increasing capital requirement. This measure was not introduced to the Board until now.

Should the shareholders be worried about Sampo’s solvency?

There is no need to be worried. Sampo’s solvency is at sufficient level, but with stronger solvency we are able to operate more freely in the investment markets. It also supports our ability to pay dividend and creates better possibilities to create value for our shareholders, for example by participating mergers and acquisitions or making large-scale direct financial investments.

Would shares of Nordea held by Sampo be included the financial instruments mentioned in the proposal?

Yes.

If the Board decided to distribute extra dividend in the form of Nordea’s shares, could Sampo’s ownership in Nordea decrease below 20 per cent?

This option is not excluded.

What would the decrease of the ownership below 20 per cent mean?

In that case, Nordea would no longer be Sampo’s associated company and the profit would not be consolidated in Sampo’s income statement. This would also substantially change the capital requirement rules for Sampo.

Would this change Sampo’s view on Nordea?

No, it would not. As the largest shareholder in Nordea, Sampo is still committed to participate developing the company to create value for shareholders.

When would this extra dividend be distributed?

This is an authorization, which the Board can, in its discretion, use or not use. The authorization would be valid until the next Annual General Meeting.

What would be the tax treatment for the possible extra dividend in financial instruments?

The tax treatment for the dividend in the form of financial instruments is similar as for cash dividends. Also, the Finnish transfer tax of 1.6 per cent would become payable but Sampo would pay it on behalf of the shareholders. If the AGM approves the proposed authorization and the Board decides to use it, we will provide further information on the tax treatment.