Mandatum strategic review: The Board of Sampo plc proposes a demerger
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Mandatum strategic review: The Board of Sampo plc proposes a demerger
On 7 December 2022, the Board of Directors of Sampo plc announced a strategic review of Mandatum’s role within the Group. Following an assessment of options, the Board has resolved to propose a partial demerger of Sampo plc to separate Mandatum from the Sampo Group.
- The demerger would create a leading pure-play Nordic P&C insurer capable of delivering high and stable returns on capital, and an independent Mandatum. The demerger process, which is well established in Finland, provides a financially efficient means of delivering the separation in one step, says Björn Wahlroos, Chair of the Board.
- Mandatum is a major Finnish financial services provider with a strong brand that is well positioned to grow, both organically and via potential consolidation in the Finnish wealth and asset management space. However, with Sampo’s strategic focus firmly on P&C insurance, the Board sees limited room to commit to support this within the Group, says Wahlroos.
To implement the demerger, the Board of Directors proposes that the Annual General Meeting on 17 May 2023 resolves to approve the partial demerger of Sampo plc as set forth in the demerger plan approved by the Board on 29 March 2023. In the demerger, all of the shares in Mandatum Holding Ltd (a wholly-owned direct subsidiary of Sampo plc) and related assets and liabilities will transfer without a liquidation procedure to Mandatum plc, a company to be incorporated in the demerger on the effective date, which is expected to be 1 October 2023, as set forth in the demerger plan.
On completion of the demerger, Mandatum plc intends to engage Sampo Group Chief Investment Officer Patrick Lapveteläinen as a full-time Chair of the Board. Lapveteläinen has acted as Chair of Mandatum Life Insurance Company Limited since 2019 and Chair of Mandatum Asset Management Ltd since 2021.
The Sampo Board retains the option to discontinue the demerger process until the effective date, should this be considered to be in the interest of shareholders.
THE BENEFITS OF SEPARATING MANDATUM FROM SAMPO BY MEANS OF A DEMERGER
Sampo as a focused and uniquely attractive P&C insurance group
Excluding Mandatum, Sampo is a pure-play P&C insurance group operating in the Nordic and UK digital personal lines markets. With EUR 8 billion in premiums in 2022, Sampo is the largest pure-play P&C insurance group in the Nordics by premium income, as well as the most diversified, as it is the only company operating in all the Nordic countries. Sampo’s P&C business is primarily focused on retail clients and SMEs, which accounted for 89 per cent of its total P&C insurance premiums in 2022. Sampo’s P&C insurance operations, If P&C, Topdanmark and Hastings, have strong market positions and brands.
Sampo has an outstanding track record of financial performance in P&C insurance dating back over two decades. The Group has delivered annual underwriting profit growth of 11 per cent on average since 2013 driven by consistent improvements in its customer proposition and profitability.
Potential to increase returns on capital and resilience
As a pure-play P&C insurer, Sampo expects to be able to enhance returns on capital with reduced market risk. At year-end 2022, Mandatum represented 20 per cent of the Sampo Group Solvency Capital Requirement (SCR) while accounting for 14 per cent of the Group’s 2022 profit before taxes excluding extraordinary items. Further, the effect of potential capital efficiency improvements is expected to be more significant in a pure-play P&C insurance group.
The separation of Mandatum would drive a reduction in Sampo’s exposure to market risk through a fall in the Group’s exposure to risk assets and with-profit insurance liabilities, supporting a reduction in the volatility of earnings and capital. With reduced exposure to market stress events, Sampo could be able to operate with lower financial buffers.
Capitalising on Mandatum’s growth opportunities
Mandatum is a major Finnish financial services provider offering a wide array of services covering asset and wealth management, savings and investment, compensation and rewards, complimentary pension plans and personal risk insurance to corporates, retail customers as well as institutional and wealth management customers. Mandatum serves a network of 20,000 Finnish corporates through its highly skilled sales force and customer relationship personnel, which gives opportunity to cross sell products from its broad offering. Further, Mandatum’s business profile is resilient, as its client and product profiles are geared toward long customer relationships, enhancing the stickiness of customer asset.
Investment management is one of Mandatum’s core strengths. The company has a strong investment track record across a number of asset classes, including private debt and other alternative assets. At year-end 2022, Mandatum had EUR 16 billion of assets under management, excluding assets managed for other Sampo Group companies.
Building on its strong track record as an investment manager, an independently listed Mandatum would have the opportunity to grow both by offering its products to new client groups, including outside Finland, and by consolidation in its home market. However, such growth would require commitments from Sampo that go beyond what the Board deems to be appropriate under the Group’s P&C insurance focused strategy.
Mandatum has a legacy portfolio of with-profits policies that has been in run-off for over a decade. The ongoing decline in the portfolio and the associated capital requirement is expected to generate significant capital. For the financial years 2020 – 2022, Mandatum returned EUR 500 million of capital to Sampo.
The partial demerger process offers procedural and financial efficiency
The Board considers a partial demerger and subsequent independent listing to be an attractive means by which to separate Mandatum from the Sampo Group. A demerger under the Finnish Companies Act is a well-established process that enables the separation of assets and liabilities relating to Mandatum to be carried out in one step. Sampo has obtained a binding tax ruling from the Finnish tax authority approving the potential partial demerger as a tax neutral transaction for Finnish tax purposes, meaning there should be no immediate tax consequences for Finnish-resident shareholders when receiving Mandatum plc shares.
As demerger consideration, Sampo shareholders would receive one new share in Mandatum plc, the company to be incorporated in the demerger on the effective date, which is expected to be 1 October 2023, for each existing series A or series B share in Sampo plc. Mandatum would only have one share class. Shares in Mandatum would be admitted for trading on Nasdaq Helsinki.
The demerger would be carried out in accordance with the attached demerger plan as a partial demerger. Sampo expects to publish in May 2023, before its Annual General Meeting, a prospectus regarding the demerger and listing of Mandatum. The prospectus to be published at the company’s website at www.sampo.com/demerger will contain more detailed information on Mandatum and the demerger.
Financial impact of the proposed demerger
In 2022, the earnings split between the Mandatum segment and the rest of the Group was as follows. The Mandatum segment’s profit before taxes was EUR 236 million before the group contribution to Sampo plc, corresponding to 14 per cent of the Group’s profit before taxes excluding extraordinary items. Excluding the Mandatum segment, Sampo Group’s profit before taxes would have been EUR 1,627 million and earnings per share would have been EUR 2.33, instead of the reported EUR 2.69.
The Board of Directors has proposed that the AGM on 17 May 2023 approve a regular dividend per share of EUR 1.80 for the 2022 financial year. Mandatum contributed to this with an internal dividend of EUR 150 million, representing approximately EUR 0.30 per share, with the remainder being attributable to the Group’s P&C operations.
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This release is not an offer of securities for sale in the United States of America. The shares in Mandatum plc referred to herein have not been, and will not be, registered under the US Securities Act of 1933, as amended ("US Securities Act"), or with any regulatory authority of any state or other jurisdiction in the United States, and may only be offered, sold, exercised, transferred or delivered, directly or indirectly, in or into the United States pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with applicable state and other securities laws.
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The shares in Mandatum plc have not been and will not be listed on a US securities exchange or quoted on any inter-dealer quotation system in the United States. Neither Sampo plc nor Mandatum plc intends to take any action to facilitate a market in Mandatum plc shares in the United States. Consequently, it is unlikely that an active trading market in the United States will develop for the Mandatum plc shares.
The Mandatum plc shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or any other regulatory authority in the United States, nor have any of the foregoing authorities passed comment upon, or endorsed the merit of, the partial demerger or the accuracy or the adequacy of this release. Any representation to the contrary is a criminal offence in the United States.
This release does not constitute a notice to convene a general meeting of shareholders nor does it constitute a demerger prospectus. Any decision with respect to the proposed partial demerger of Sampo plc should be made solely on the basis of information to be contained in the actual notice to convene the general meeting of shareholders of Sampo plc, and the demerger prospectus as well as on an independent assessment of the information contained therein. Investors are directed to consult the demerger prospectus for more comprehensive information on Mandatum plc.
This release includes "forward-looking statements" that are based on present plans, estimates, projections and expectations and are not guarantees of future performance. They are based on certain expectations and assumptions, which, even though they seem to be reasonable at present, may turn out to be incorrect. Shareholders should not rely on these forward-looking statements. Numerous factors may cause the actual results of operations or financial condition of Sampo plc or Mandatum plc to differ materially from those expressed or implied in the forward-looking statements. Neither Sampo plc, nor any of its affiliates, advisors or representatives or any other person undertakes any obligation to review or confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this release.