Sampo is a bank which has specialised in investment and savings. It means that we also care about the future wellbeing of our customers. We invite customers to our branches to discuss and plan their fi nances for perhaps decades ahead. Sampo counts more than one million Finnish people and almost 100,000 companies and institutions as its customers. We provide not only investment and savings services, but also traditional banking services via our web bank, phone bank and branch network.
A major landmark in Sampo’s history was when Finland’s leading insurance group, Sampo, and one of its leading banking groups, Leonia, joined forces at the outset of the millennium. It was not long before Mandatum, a specialist in private and investment banking, also joined the group. In 2002, Sampo transferred its P&C insurance business into the Nordic If Group. Sampo still offers all its asset management, private banking, corporate fi nance and securities brokerage services – as well as a number of its mutual funds – under the Mandatum name. On the other hand, real estate agency services are provided nationwide by Realty World.
Although Sampo’s operations are concentrated primarily in Finland, it has subsidiary banks in Estonia and Lithuania. Sampo provides life insurance services in the Baltic region and in Poland where Sampo also has a pension fund management company.
BANKING AND LONG-TERM SAVINGS SERVICES WILL CONTINUE TO BE PROVIDED UNDER THE SAMPO AND MANDATUM BRANDS. IN ADDITION, IF P&C INSURANCE WILL BE INCLUDED IN SAMPO GROUP’S SERVICES. THE OWNERSHIP REARRANGEMENT WILL NOT AFFECT CUSTOMER RELATIONSHIPS OR SERVICES. FOR CUSTOMERS, SAMPO WILL BE A BANK AND IF WILL BE A P&C INSURANCE COMPANY.
Result of P&C operations (share of If) 84 -69 .. Profi t before extraordinary items 477 534 -10.7 Group profi t for the accounting period 354 387 -8.3 VOLUME
Other assets under management (excl. Group) 10,336 9,290 11.3 Life insurance savings 5,026 4,733 6.2
**) Board of Directors’ dividend proposal for 2003. The internal dividends and sales profi ts between the different lines of business have not been eliminated in the result analysis and specifi cations or key fi gures of banking and investment services and the insurance business. The above-mentioned items have been eliminated in the Group operating profi t. Furthermore, the profi t or loss corresponding to the share held in the associated company, If, has been added or deducted in the operating profi t. Therefore, the Group operating profi t is not equal to the sum of the business area operating profi ts.
2003 was much better for Sampo than we originally expected. Low net income from fi nancial operations, competition on the housing loan market and falling share prices early in the year did not give much reason for delight. But the tide turned. The decline in net income from fi nancial operations evened out in the autumn and started a slight rise towards the end of the year. In the housing loan market we outperformed our competitors without reducing our spreads. With the signifi cant upturn in the equity markets in the latter half of the year and its effect on long-term savings, we can say that 2003 was good for Sampo.
Corporate tax reform will take us back to the 1980s The Finnish government’s proposals for reform of corporate taxation and pension insurance are matters of great concern to me. The proposed changes in corporate taxation will lead us back to the 1980s, when tax planning greatly affected the way companies acted. It is not enough for remote Finland that our taxation system should be comparable to those in Central Europe. We need to be more competitive. It is well to remember that most FinnishSwedish mergers have resulted in Finnish domicile, largely due to our system of corporate and capital taxation. This vital competitive edge is now under threat.
The return to economic growth provided for a good conclusion of the year. Sampo Life and If picked up speed considerably. Our operations in Estonia are also growing fast and profi tably. In banking, the low net income from fi nancial operations affected the result. Over 20,000 Personal Financial Plans have already been set up for our customers. In the hands of our expert staff, this instrument already provides the organization with a powerful competitive edge.
The recession is now over. Share prices have been rising for more than half a year. Rising interest rates provide further support for earnings improvement. I believe that 2004 will be a good year for Sampo.
If fi ts well into Sampo. Having been its main owner for the last two years we know the company. Under our leadership, If has completed a strict programme of effi ciency measures. Now the company is in great shape and the future looks even more promising. If’s combined ratio has already fallen to 100.9 per cent (it was 113.1 per cent in 2001) and I believe it will remain below 100 per cent in the coming years.
As both old and new Sampo businesses are in good shape, we can expect improved results this year.
Sampo’s goal is to be a long-term partner for its customers, not just to perform banking transactions or sell individual products. The longer the customers stay with Sampo, or the more they concentrate their fi nancial affairs in Sampo, the bigger are the benefi ts they gain.
Sampo’s business areas are long-term savings (pension and life insurance, asset management and mutual funds), retail, corporate and private banking, and investment banking. Sampo’s goal is to be the leading Finnish company in these areas. There are good prospects for growth because Finns have both more reason and more opportunity to save than they did before. As the population grows older, there is increasing public discussion on the adequacy of pension security.
Effi ciency is a key aspect of Sampo’s operations. New banking technology has no intrinsic value, and gives no competitive edge. It is simply the means to provide customers with convenient, cost-effi cient services. Sampo’s real competitive edge comes from its expertise, good service and effi cient way to work. This is expressed in services such as the Personal Financial Plans made for retail customers, or in the continuing efforts to learn more about corporate customers and their needs.
During 2003 there was increased interest among customers in advisory services to support personal fi nancial planning. The advice service launched in 2002 – “an hour with the customer” – was expanded with the introduction of Personal Financial Plan, a new tool for customers and Sampo customer service personnel. By the end of the year around 20,000 customers had already prepared a Personal Financial Plan.
In order to adapt its services to match current demand, Sampo commenced rationalisation negotiations in June. These primarily concerned the retail customer network
A new operating model was introduced in the retail branches to enable them to better respond to the increased demand for advisory services and to make it possible for routine matters to be dealt with quickly. Everyday matters are dealt with in the branches by customer service groups; more extensive advisory services are offered by customer relationship groups, and also by customer acquisition groups which primarily work outside the branches. The role of the phone services was refocused and this activity was centralised in Helsinki.
Continued low interest rates kept demand for housing loans strong. Sampo’s housing loan stock increased by 17.7 per cent during the year. Towards the end of the year the Personal Financial Plan was providing Sampo with an increasingly important competitive advantage in attracting new customers for housing loans. In a situation where there is tough competition for loan customers, Sampo can
In terms of wealth management, 2003 turned out to be another challenging year. The markets recovered towards the end of the year, encouraging customers to increase the equity weighting of their portfolios. In spite of this, instruments securing at least the capital invested remained popular throughout the year. In order to respond to demand from its customers, Mandatum Private Bank worked with its partners to develop these services in particular. The Private Bank launched two new-type equity index bonds, Mandatum Zeus, which invests in Europe, and Mandatum Hera, which invests in China. In both cases the investment period is exceptionally short: one year in the case of Zeus and two years for Hera. Mandatum introduced a new wealth management product for its corporate and institutional customers, the single-payment, fi xed-term Mandatum Capital redemption policy. This invests in mutual funds managed by Sampo Fund Management and/or the investment basket with guaranteed interest managed by Sampo Life.
Mandatum Private Bank has achieved the leading position among Finnish customers who require private wealth management services. In a survey undertaken in autumn 2003, Euromoney magazine rated Mandatum as Finland’s best private bank (rating published in issue 1/2004).
Sampo maintained its market leader position in many customer segments and services.
Sampo’s corporate branches and special units serve companies and institutions, local authorities, the state and its unincorporated enterprises. The range of services includes payments, cash management, investment and fi nancing.
As a provider of fi nancial and application services for trade unions and unemployment funds, Sampo is the market leader. 70 unions with altogether 1.2 million members use the trade union membership payment system. Sampo’s unemployment fund systems were used by 19 funds which insure 850,000 people. There are 480,000 members in associations using Sampo’s membership payment system.
Sampo Finance achieved a record result in leasing, hire-purchase and factoring services. The main areas of focus in the products offered together with dealers and Sampo´s corporate network are leasing solutions for IT purchases and full-service leasing concept in the fi nancing of company cars. Sampo Master, a fi nancing solution developed for the IT purchases of larger companies, grew
by 34 per cent. The growth of the full-service leasing portfolio was even more signifi cant, about 40 per cent. Autoprime hire-purchase fi nance, a fi nancing solution for retail customers, increased by 18 per cent, which strengthened Sampo’s position in the markets.
During the year, the trading unit expanded its product range into commodity derivatives, which was wellreceived among customers. Signifi cant new modes of operation included the provision of outsourcing services in corporate foreign exchange and money market trading and in corporate debt portfolio analyses. Trading retained its strong position in its conventional products and achieved an over 40 per cent market share in the brokerage of commercial paper.
Remarkable steps in e-invoices and other web-based services The year 2003 was remarkable for the development of standardize e-invoices as well as other web–services.
A disparate year in the fi nancial markets ended much better than it began. The upswing in the equity markets supported strong growth in Sampo’s investment and savings services.
Sampo Life’s premiums written in unit-linked insurance increased by 47 per cent, and its market share in premiums written grew to 28.5 per cent. Favourable performance continued also in unit-linked insurance savings that increased by 63 per cent. The sales of with-profi t policies was reduced, in line with strategy. As a result, the total market share in premiums written decreased slightly to 17.6 per cent.
Sampo Group includes banks in Estonia and Lithuania, life insurance companies in Estonia, Latvia, Lithuania and Poland, and a pension company in Poland. The Baltic economies have been among the fastest growing in Europe in recent years. The accession of these countries to the EU in spring 2004 will create a solid basis for further growth. The social and economic situation has changed rapidly, creating demand for life insurance and banking services. Sampo is seeking a strong position as an active service provider in these growing markets.
The Sampo banks in Estonia and Lithuania recorded strong growth, with the number of customers reaching 90,000 in Estonia and 13,000 in Lithuania by the end of 2003, a total increase of 37 per cent in one year. Retail customers - who are the main focus in both countries - account for most of the growth. Housing loans grew strongly all year, with Sampo’s share of the housing loan market being 9 per cent in Estonia and 13 per cent in Lithuania.
The number of corporate customers also rose, with market shares increasing in both loans and deposits. Corporate customers are evaluated by Group-wide principles and provisions are made on a forward-looking basis. Sampo Pank implemented a project to boost effi ciency in credit processes and improve customer consultancy services.
Sampo bankas also signifi cantly improved its operating result which, together with recoveries on credit losses, was enough to produce a net profi t for the year. Favourable economic development is expected to continue in the Baltic states, creating a good basis for the continued profi table growth of banking operations in the future.
Sampo’s life insurance company in Estonia, AS Sampo Elukindlustus, was established in 1999. In its fourth year of operations it was Estonia’s fastest growing life insurance company. Premiums written grew by over 70 per cent, compared with 30 per cent for the market as a whole. By the end of 2003 the company’s market share was 9 per cent. In line with Sampo´s strategy, it focused on selling unit-linked products, with their share of new sales rising from 5 to 76 per cent. Co-operation with Sampo Pank expanded signifi cantly. The bank became the main sales channel accounting for more than 60 per cent of total sales.
The Lithuanian life insurance company Sampo Gyvybes Draudimas increased its premiums written by 160 per cent in its third year, compared to 60 per cent growth in the whole market and raised its market share to 6 per cent. It successfully participated in the Pillar II pension insurance reform and at the end of the year gained more than 6,000 new customers in two months. It increased its share of unit-linked products and will intensify co-operation with Sampo bankas in 2004. In the whole Baltic region, the Sampo life insurance companies have around 25,000 customers and a market share of over 9 per cent.
exceeds EUR 800 million, which is invested in 74 private equity funds. These investments have been allocated globally, with European private equity funds having a central position in the portfolio.
Brokerage – steady results in a non-active brokerage year Mandatum Stockbrokers Ltd is responsible for Sampo’s securities brokerage services and investment research.
Equity markets began to recover in the spring, and the decline of the HEX portfolio index by a good 18 per cent in January-March turned to an upswing of almost 35 per cent by the year’s end. Unlike previous upturns, the recovery was not led by Nokia. The high tech companies with small market values were relatively the most successful. However, Nokia still accounted for more than 70 per cent of total trading. Even though the total index ended the year close to the fi gures of the year’s beginning, total trading was more than one-fi fth less than in 2002.
The revenues from Mandatum Stockbrokers’ services decreased by EUR 0.8 million to EUR 10.2 million, but operating profi t remained at EUR 1.2 million. Strong competition kept brokerage fees at low levels. Profi tability was improved by the effi ciency improvement measures taken during the year, but the low number of capital market transactions countered this. Mandatum increased its market share especially in trading for domestic retail clients. The continued invasion of international brokers in the Helsinki Exchanges weakened Mandatum’s position with foreign clients. However, successful new customer acquisition increased the company’s market share in the total trading of HEX Plc to 3.9 per cent (2.7) and in the number of transactions to 5.5 per cent (5.0).
The central unit of Realty World – Finland’s second largest real estate agency chain - is owned by Sampo Bank. All the real estate agencies themselves are independently owned and operated fi rms. At the end of the year the chain comprised 89 franchised real estate agencies in 52 localities and employed 450 people.
2003 was a year of strong growth for Realty World. Brokerage turnover grew by 20.7 per cent to EUR 34.2 million. The chain brokered a total of 10,300 real estate transactions, which is an increase of 13.2 per cent on the previous year. Turnover particularly increased in the large towns.
Close cooperation with branches of Sampo Bank Cooperation between local real estate agents and branches of Sampo Bank was intensifi ed during 2003.
As a result of closer cooperation the number of apartment transactions backed by Sampo housing loans and brokered by Realty World increased by almost 30 per cent. A new customer relationship management system was created for the chain, and its website was upgraded to serve the needs of apartment buyers even better. Two or three-dimensional layout drawings and 360° virtual images have quickly become common features. The web services presenting Realty World’s properties attract over 200,000 visitors each month.
If P&C Insurance’s market share in Finland is 35 per cent (2002). If is also the leading Nordic P&C insurer with 3.8 million customers and a total market share in the Nordic region of approximately 24. In 2003 the company’s gross written premiums totalled EUR 4.3 billion (SEK 38.9 billion). The If Group employs approximately 7,000 people, of whom about 2,200 work in Finland.
Turnaround according to plan During 2003, If continued to focus on the improvement of profi tability in its core business. Customer satisfaction is increasingly important and activities to increase customer retention were implemented during the year. In October, the company relinquished the Marine & Energy portfolio which did not fi t its overall strategy and as the M&E business is by nature very volatile. The transaction will release capital and increase the solvency ratio by approximately 3.5 percentage points.
If’s profi tability enhancement programme, which has lasted two years now, and increased premiums have reduced the combined ratio by more than ten percentage points. The company’s turnaround shows that economies of scale are obtainable in the P&C insurance business, even in the Nordic context. The strict cost savings measures implemented by the company’s management have also succeeded.
If reached a clearly positive operating result in 2003, EUR 300 million (SEK 2.7 billion). In 2002 If’s operating loss was EUR 227 million (SEK 2.1 billion).
The year 2003 13 January Working in co-operation with Sampo, the Union of Salaried Employees became the fi rst trade union in Finland to include voluntary pension saving as a membership benefi t.
16 January Sampo Bank announced its fi rst personalised credit cards: Marimekko’s famous Poppy, Kaj Stenvall’s duck picture and a football fi eld were used as the themes of Sampo’s MasterCard.
10 February Mandatum Private Bank launched the Mandatum Zeus equity indexed annuity, the fi rst of two new types of equity indexed annuity offered by the Private Bank during the year.
26 March Sampo published the 2002 Annual Report and its fi rst Corporate Responsibility Report.
3 April Carlo Eräkallio was appointed Managing Director of Mandatum Asset Management Ltd.
11 April Sampo Bank announced a new service for retail customers – the Personal Financial Plan.
16 April Sampo Fund Management become the fi rst in Finland to launch a fi xed income fund which manages its assets according to the principles of sustainable development.
15 May Sampo announced that it would separate its corporate fi nance and brokerage & equity research companies into independent lines of business.
19 December Sampo plc announced a transfer of its subsidiaries AS Sampo Pank (Estonia) and UAB Sampo bankas (Lithuania) to Sampo Bank plc. This internal re-arrangement took effect on 2 January 2004
All of the releases published by Sampo can be read at /press_room
Sampo’s Board of Directors is responsible for the management of the company in compliance with the law, the regulations of the authorities, Sampo’s Articles of Association and the decisions of the Shareholders’ Meetings. The operating procedures and main duties of the Board of Directors have been defi ned in the Board’s Charter.
The Board of Directors approves the business strategy and long-term operating plans of Sampo Group, and the principles governing Sampo Group’s risk management and internal control, and is responsible for the proper management of the Group’s operations. The Board also decides, within the limits of the company’s fi eld of activities, on exceptional and far-reaching matters with respect to the scope and nature of Sampo Group.
The composition of the Board of Directors of Sampo plc is as follows: Olli-Pekka Kallasvuo Chairman Jyrki Juusela Vice Chairman Tom Berglund member Anne Brunila member Georg Ehrnrooth member Paavo Pitkänen member Christoffer Taxell member Björn Wahlroos member
The Board of Directors of Sampo plc convened 12 times in 2003. The average attendance of Board members at meetings was 99 per cent.
Executive Committee and other committees appointed by the Board The Board may appoint committees, executive committees and other permanent or fi xed-term bodies for duties assigned by the Board. The Board confi rms the Charter of the Executive Committee, and the guidelines and authorisations given to other bodies appointed by the Board. The Board has established Sampo Group’s Executive Committee, Nomination and Compensation Committee, Audit Committee, Risk Control Committee, Asset and Liability Committee (to monitor the Group’s balance sheet risks), Credit Committee (to monitor credit risks) and Investment Committee (to monitor investment risks). The Board has also appointed the members of these committees. Information concerning these members is presented as per 31 December, 2003.
The composition of the Group Executive Committee is as follows: Björn Wahlroos CEO Kari Stadigh Deputy CEO Ilona Ervasti-Vaintola Chief Counsel, Principal Attorney Ilkka Hallavo Head of Corporate Banking,
The Executive Committee convenes once a week in accordance with its rules, and at other times as requested by the CEO.
The Nomination and Compensation Committee comprises the Chairman of the Board (who acts as the Committee’s Chairman), the Vice Chairman of the Board and one member elected from among the members of the Board.
The Nomination and Compensation Committee is entrusted to prepare proposals for Sampo’s Annual General Meeting on the composition of the Board and the principles by which Board members are to be compensated and their fees, and to prepare proposals for Sampo’s Board on the principles by which Sampo Group’s staff are to be compensated and by which the members of Sampo Group’s Executive Committee are to be compensated and their fees. The Committee is also responsible, if necessary, for preparing proposals for the Board on issues relating to corporate governance. The Nomination and Compensation Committee comprises Olli-Pekka Kallasvuo, Jyrki Juusela and Georg Ehrnrooth, and met three times in 2003.
The Audit Committee is responsible for overseeing Sampo Group’s internal audit and the actions of the auditors, the authenticity of the Group’s fi nancial accounts and the auditors’ professional competence and independence. The Audit Committee comprises at least three members elected from among the non-executive Board members, and meets at least once every half-year. The Audit Committee comprises Jyrki Juusela (Chairman), Paavo Pitkänen and Christoffer Taxell. Since its establishment in spring 2003, it has met once.
Other committees ASSET AND LIABILITY COMMITTEE, CREDIT COMMITTEE AND INVESTMENT COMMITTEE
The Asset and Liability Committee is responsible for preparing the Group’s balance risk policy for approval by the Board, preparing the banking book and trading limits and authorisations for the Boards of Group companies, and monitoring the use of limits and authorisations and the Group’s consolidated liquidity. The Asset and Liability Committee comprises Patrick Lapveteläinen (Chairman), Martti Porkka, Kai Brander, Aki Palo, Markku Pehkonen, Risto Tornivaara, Jyrki Appelqvist, Pekka Kainulainen and Petri Viertiö, the last three being expert members.
The Investment Committee is responsible for preparing the Group’s investment policy for approval by the Board, preparing investment decision authorisations for the Boards of Group companies, and monitoring the use of limits and authorisations. The Investment Committee comprises Kari Stadigh (Chairman), Patrick Lapveteläinen, Sirpa Mannila, Vesa Nurminen, Ulla Kangas and Petri Viertiö (expert member).
Chief Executive Offi cer The company has a Managing Director who is simultaneously the CEO of Sampo Group. The Board of Directors elects and releases the CEO, and decides on the terms of employment and other compensation. The Managing Director of the company and the CEO of Sampo Group is Björn Wahlroos.
The Chairman, the Vice Chairman and the other members of the Board will be paid the following fees monthly until the close of the Annual General Meeting in 2004: the Chairman EUR 4,200, the Vice Chairman EUR 3,360 and the other members of the Board EUR 2,520. In addition, all members of the Board will be paid EUR 420 for each meeting of the full Board or one of its committees.
The criteria for payment of the performance bonus will be examined in December 2005 and in 2006 after Sampo has published its results for the fi rst quarter (Q1). If the criteria for payment are fulfi lled, the performance bonus will be paid in three instalments as follows: 30 per cent in December 2005, 35 per cent in June 2006 and 35 per cent in January 2007.
Recipients of performance bonuses must use 20 per cent of the performance bonuses they receive, after deduction of taxes and similar payments, to buy Sampo A shares on the Helsinki Exchanges, after which they must hold the shares in their possession for two years.
The CEO was paid a total of EUR 868,774 in salaries and profi t bonuses for 2003. The Deputy to the CEO was paid a total of EUR 577,407 in salaries and profi t bonuses.
Internal audit Sampo’s Internal Audit is a function independent of business operations which evaluates the suffi ciency of the internal control system and risk management and the compliance with statutory requirements and laws.
The following companies in Sampo Group keep their own insider registers: Sampo plc, Sampo Bank plc, Mandatum Asset Management Ltd, Sampo Fund Management Ltd, Mandatum Stockbrokers Ltd, Mandatum & Co Ltd and 3C Asset Management Ltd.
Björn Wahlroos and Olli-Pekka Kallasvuo Jyrki Juusela, Anne Brunila and Paavo Pitkänen
He holds 10,000 Sampo plc shares directly or through a controlled company
Vice Chairman Jyrki Juusela, born 1943 Managing director, Chairman of the Group Executive Committee of Outokumpu Oyj
Chairman of the Board of the Foundation of Technology, Vice Chairman of the Board of Varma Mutual Pension Insurance Company (from 1 January 2004), and member of the Boards of Inmet Mining Corporation, the Technology Industries of Finland and the Association of Finnish Steel and Metal Producers
He holds 4,905 Sampo plc shares directly or through a controlled company
Paavo Pitkänen, born 1942 Managing Director of Varma Mutual Pension Insurance Company
Member of the Boards of Wärtsilä Corporation, Stora Enso Oyj and The Federation of Finnish Insurance Companies
He was appointed member of the Board of Directors of Sampo plc on 22 January, 1999
He was appointed member of the Board of Directors of Sampo plc on 5 April, 2001
Sampo plc´s Board of Directors is appointed annually by the Annual General Meeting. The present members of the Board were elected by the Annual General Meeting on 9 April 2003.
The CVs of members of the Board of Directors can be viewed on the Internet at www.sampo.com, see Investor Relations/Sampo Group/Corporate Governance.
Chairman of the Boards of If P&C Insurance Holding Ltd, Kaleva Mutual Insurance Company, Aspo Plc and the Federation of Finnish Insurance Companies, and Vice Chairman of the Board of Alma Media Corporation
He holds 60,380 Sampo plc shares directly or through controlled company Options (1998 programme): 42,750 Options (2000 programme): 50,000
Chairman of the Board of MB Equity Partners Oy, member of the Boards of Novo Group Plc, MB Rahastot Oy and the Finnish Bankers’ Association, member of the Executive Committee of the Customer Advisory Offi ce of the Banking Sector, and member of the Supervisory Boards of Finpro ry and Luottokunta
He holds 500 Sampo plc shares directly or through controlled company Options (1998 programme): Options (2000 programme): 50,000
He holds 225,190 Sampo plc shares directly or through controlled company Options (1998 programme): Options (2000 programme): 50,000
Peter Johansson, Björn Wahlroos, Patrick Lapveteläinen and Petri Niemisvirta Mika Ihamuotila and Kari Stadigh
He holds 2,500 Sampo plc shares directly or through controlled company Options (1998 programme): Options (2000 programme): 50,000
He holds no Sampo plc shares Options (1998 programme): 3,825 Options (2000 programme): 50,000
Maarit Näkyvä, born 1953 Executive Vice President; Head of Retail and Private Banking
She holds no Sampo plc shares Options (1998 programme): Options (2000 programme): 50,000
Persons who lost their jobs were offered the opportunity to participate in retraining, job search counselling or pension arrangements, as well as fi nancial support. The support arrangements made were larger than those of other companies that reduced staff. This demonstrated Sampo’s will to contribute to the co-operation process. In addition, the Group’s staff was reduced during the year by 237, due to natural turnover, expiry of temporary employment contracts and adjustment measures.
Retail customer branch operations reorganised Retail customer branches were organised into customer service groups that handle daily banking transactions, customer relationship groups that offer services related to the management of customers’ fi nances, and customer acquisition groups that largely operate outside branches. The new service organisation makes it possible to take care of banking duties without delay, as well as to engage in in-depth fi nancial advisory more effi ciently.
The investment training for the customer account managers of Sampo’s corporate branches was completed in the spring. In all, more than 300 customer account managers participated in these courses which were carried out in co-operation with Helsinki School of Economics Executive Education.
Sampo Business School provides management and specialist training Sampo Business School training supports the development of competence. The content of the courses, started in 2002, was expanded: in addition to the investment services diploma, the concept now comprises a basic training programme for managers and an interactive skills course aimed at managers and specialists. In the future, the training will also feature instruction in corporate fi nance and business management.
Cost-effi ciency was improved by increasing web-based learning in all Sampo´s training programmes.
specialists are subject to the collective labour agreement and therefore entitled to general increases. The executive management is not included the collective labour agreement and their salaries are raised through individual increases. In 2003, the Sesam group pension insurance was included in the incentive system for the Group’s expanded Executive Committee.
Long-term collective rewards are given through the personnel fund. Profi t-sharing bonuses are annually paid to the personnel fund according to a system agreed upon in advance, based on Sampo Bank Group’s operating profi t. In 2003, the personnel fund was paid a total of EUR 2.49 million, based on the profi t for 2002.
Participation systems and well-being services along the lines defi ned earlier Sampo Group’s Co-operation Board had nine meetings during the year. The purpose of the board is to promote and develop co-operation between the employer and the staff, and within the staff, as well as to promote the implementation of the Act on Co-operation within Undertakings in the Group. The committee has 15 members, of whom seven represent the clerical staff, two represent managers and specialists and six represent the employer.
Sampo provides its customers primarily with solutions that promote saving and thus prepare for the challenges of population ageing. In 2003, Sampo refi ned the interpretation of its values and improved its guidelines and best management practices.
Some social issues also concerned the Finnish fi nancial sector. They included the possible need to reform the co-operation procedure, redundancy practices, the reconciliation of work and home, and matters related to fi tness at work. Finland and various other countries discussed how to prepare for population ageing. Attitudes hardened against sponsorship of professional sports, especially after doping was exposed in many countries.
Ethical problems surfaced in the fi nancial sector - in the USA, for example, where malpractice and illegalities were revealed in certain mutual funds and in the operations of some foreign exchange traders. Management incentive issues aroused discussion in many countries, including Finland and its Nordic neighbours. Discussion was particularly active in Sweden.
During the year, Sampo refi ned the interpretation of its values and improved its guidelines and best management practices. In this context, the compliance instructions concerning competition jurisdiction were confi rmed. Transparency was increased by publishing Sampo’s fi rst CR report, which was elected as the best CR report in the Finnish fi nancial sector in the 2003. Intranet and Internet communications were improved by taking into account stakeholder feedback more systematically. For example, the company’s Internet pages for investors now feature information on risk management. Environmental indicators are discussed in more detail on the company’s Internet pages and in the CR report.
Sampo’s way of operating by focusing more on solutions than products was intensifi ed. The use of paperless communication was developed further, and premises management prepared an environmental programme in December. Sampo changed its sponsorship to focus on children and young people instead of competitive sports. Additionally, the company sponsored culture and public health work.
Sampo improved the effi ciency of its operations and continued to streamline its distribution network. Persons who lost their jobs as a result of the rationalisation negotiations were offered fi nancial support, the opportunity to participate in retraining, job search counselling or pension arrangements. As a result, the number of redundancies was very small. In the autumn, a work satisfaction survey was performed, showing that general work satisfaction had remained at almost the same level as in the previous survey one year ago.
Operations based on Sampo’s values The Group’s values are ethicality, loyalty, transparency and enterprise. These values were reinforced in 2003 and were displayed in the Group’s operations in many ways. Sampo’s way of operating is based on customer orientation. Instead of promoting products to increase sales, the bank offers comprehensive fi nancial services and counselling.
Co-operation with stakeholders was extended with respect to sustainable development by discussing the goals of Sampo’s environmental undertakings with the company’s subcontractors. Sampo stopped sponsoring top sports events in Finland and focused its resources on youth sports and school projects (see information box). Co-ordination of values and CR thinking was commenced in the Group companies in the Baltic countries and Poland. Foreign subsidiaries’ management structures were also streamlined and their management practices were made more uniform.
LOYALTY: During the year, many of Sampo’s business areas performed customer satisfaction surveys, the results of which will be utilised in developing the company’s services. As part of the efforts to pay more attention to young people, the Massi package was launched to help students in higher education and under the age of 26 years plan and manage their fi nancial affairs.
In corporate research, a foundation was established to incorporate systematic evaluations of environmental aspects into credit risk analyses. This helps customer account managers and corporate customers to assess the environmental risks that affect the sustainability and profitability of operations.
TRANSPARENCY: Account statements issued to customers were improved to better serve the customers’ own fi nancial planning. Account transactions were grouped by their nature and more information was provided on the location of cash withdrawals. Now customers can determine their fi nancial position and completed account transactions more easily. Pricing of retail customer services was made clearer, with the new system effective from February 2004.
The CR steering group prepared Sampo’s fi rst separate CR report.
Sampo focused its monetary donations on comprehensive schools and general upper secondary schools for projects developing the civic skills of pupils and students. Sampo donated the money for schools in spring 2003 and at the same time announced its withdrawal from sponsorship of professional sports in Finland.
Shares and votes The Articles of Association state that Sampo plc’s share capital can be at minimum EUR 30,105,638.84 and at maximum EUR 120,422,555.30. On 31 December, 2003, the company’s share capital was EUR 93,162,650.32 divided into 553,919,965 shares, of which 552,719,965 were A shares and 1,200,000 were B shares. The shares have no nominal value. The approximate counter book value of the shares is EUR 0.17. Each A share has 1 vote and each B share has 5 votes at General Meetings. The A shares have been quoted on the Helsinki Exchanges since 1988. Kaleva Mutual Insurance Company owns all the B shares. In addition Sampo’s 1998 A/B/C warrants and 2000 A/B options are quoted on the main list of the Helsinki Exchanges. The 2000 A options have been traded on the Helsinki Exchanges since 2 January, 2003 and the 2000 B options since 2 January, 2004, at which time they were combined to form the 2000 A/B options.
Decrease in share capital 3 July, 2000 Technical decrease - 49.85
Merger consideration, 31 December, Leonia shareholders, 44,720,000 87.46 A shares 2000 i.e. the State of Finland
Decrease in 11 April, 2003 Cancellation of shares bought -2,434,400 93.15 share capital back (2,434,400 A shares)
Bond with Warrants, 1998, Three conversions Warrant conversion 66,100 93.16 A shares in 2003 *) Rounded out
2000 option programme On 29 September, 2000, an Extraordinary General Meeting of Sampo decided to offer options without consideration to the management, middle management and other key personnel of Sampo and its subsidiaries and to a whollyowned subsidiary specifi ed by the Board of Directors. The decision to offer these options disapplied the shareholders ’ pre-emptive subscription rights.
A total of 5,200,000 options were issued, of which 2,600,000 are designated as A options and 2,600,000 as B options. Each option entitles its holder to subscribe for fi ve Sampo A shares. The 2000 A options were admitted for trading on the main list of the Helsinki Exchanges on 2 January, 2003 and the B options on 2 January, 2004 after the stipulated subscription requirements had been met. The share subscription period for all the options ends on 31 January, 2007.
Shareholders There were 52,429 registered shareholders on 31 December, 2003, which is an increase of 6,699 over the previous year. 1.49 per cent of all shares had not been transferred to the book-entry securities system. 27.6 per cent of the share capital was under foreign ownership, amounting to 27.4 per cent of the votes. Almost all foreign shareholders have nominee-registered holdings.
During the year under review no notifi cations were received of holdings exceeding or falling below the disclosure thresholds.
Annual General Meeting Sampo plc’s Annual General Meeting will be held on Wednesday 7 April, 2004 at 2 p.m. at the Marina Congress Center, address Katajanokanlaituri 6, 00160 Helsinki. The reception of persons who have registered for the meeting will commence at 12.30 p.m.
To be entitled to participate in the AGM, shareholders must be registered in the shareholder register maintained by Finnish Central Securities Depository Ltd (Suomen Arvopaperikeskus Oy) by 26 March, 2004. Asset managers should report the names of nominee-registered shareholders to the Sampo shareholder register prepared for the AGM by Finnish Central Securities Depository Ltd.
Shareholders whose shares have not been transferred to the book-entry securities system are also entitled to attend the AGM, provided they were registered in Sampo’s share register before 12 September, 1997. In this case, the shareholder must present at the AGM a share certifi cate or other proof that ownership of the shares has not been transferred to a book-entry account.
According to the proposal, only shareholders who are registered in the shareholder register kept by Finnish Central Securities Depository Ltd on the record date for dividend payment, 14 April,2004, are entitled to dividends. The proposed dividend payment date is 21 April, 2004.
Shareholders who have not transferred their share certifi cates to the book-entry securities system by the dividend record date will be paid their dividends after the shares have been transferred to the book-entry system.
Varma Mutual Pension Insurance Company 42,126,285 7.61 7.54 Wahlroos Björn 11,739,890 2.12 2.10 Kaleva Mutual Insurance Company *) 9,457,255 1.71 2.55 Stora-Enso Oyj 8,746,620 1.58 1.57 Ilmarinen Mutual Pension Insurance Company 7,354,655 1.33 1.32 State Pension Fund 4,175,000 0.75 0.75
Mutual Insurance Company Pension-Fennia 1,829,500 0.33 0.33 Pension Fund of Fortum 1,725,240 0.31 0.31 OP-Delta Trust Fund 1,485,600 0.27 0.27 Nordea Life Assurance Finland Ltd 1,113,700 0.20 0.20 Nordea Fennia Trust Fund 887,350 0.16 0.16 Church Central Fund 770,700 0.14 0.14 EVLI-Select Trust Fund 764,900 0.14 0.14 Etera Mutual Pension Insurance Company 722,150 0.13 0.13 OP-Tuotto Trust Fund 713,400 0.13 0.13 OP-Pirkka Trust Fund 700,000 0.13 0.13 Oy Premiere Holding Ab 620,200 0.11 0.11 Teollisuuden Voima Oy 610,260 0.11 0.11
In the nominee register in total 153,047,198 27.63 27.39 Others in total 79,812,982 14.41 14.28 *) 8,257,255 A shares and 1,200,000 B shares
7 Foreign ownership, own account 0.16% 8 On joint account 1.49%
Analysis of Sampo prepared by leading investment analysts and stock-brokers world-wide. Sampo does not assume liability for the assesments presented in the analyses.
Financial Statements and Notes 35 Board of Directors’ Report 42 Consolidated Profi t and Loss Account 45 Consolidated Balance Sheet 50 Parent Company Profi t and Loss Account 51 Parent Company Balance Sheet 52 Notes to the Accounts 52 Risk Management 64 Accounting Policies 70 Calculation Methods for the Key Figures 74 Key Figures 77 Other Notes to the Accounts 120 Auditors’ Report
Sampo Group’s earnings per share increased to EUR 0.64 (0.63) and its operating profi t was EUR 464 million (542). The operational result improved signifi cantly, since the operating profi t for the comparison year included a non-recurring sales gain of EUR 261 million from the If arrangements. Due to the good result and growth in valuation differences, the net asset value per share increased to EUR 5.64 (5.26). The Board proposes to the Annual General Meeting that a dividend of EUR 1.50 per share (0.35) be distributed.
The Group’s market positions in its areas of focus continued to be strong. In unit-linked insurance, the market share of insurance premiums rose to 28.5 per cent (25.3). Sampo’s mutual fund assets continued to grow strongly and the market share of mutual fund assets was 22.0 per cent (24.5). Sampo also succeeded well on the housing loan markets and increased its market shares.
Life paid additional dividends amounting to EUR 150 million. As a result of the measures Sampo plc’s holding in Sampo Life increased to 96.12 per cent (previously 90.1) and Sampo Bank plc’s holding decreased to 3.88 per cent (previously 9.9) on 26 March 2003. The measures improve Sampo Life’s return on equity and released capital for the holding company.
Administration The Annual General Meeting decided on 9 April 2003 to increase the number of members on the company’s Board of Directors by one, to eight members. Anne Brunila was elected to the Board in addition to the earlier members, Tom Berglund, Georg Ehrnrooth, Jyrki Juusela, Olli-Pekka Kallasvuo, Paavo Pitkänen, Christoffer Taxell and Björn Wahlroos, CEO. At its inaugural meeting, the Board of Directors re-elected Olli-Pekka Kallasvuo as Chairman and Jyrki Juusela as Vice Chairman.
The Annual General Meeting granted the Board of Directors authorisations, valid until 9 April 2004, to buy back and convey Sampo’s own shares. The maximum amount of A shares that can be bought back 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 by 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 in the Helsinki Exchanges, in which case the shares will not be bought in proportion to the holdings of the shareholders.
A total of 347,350 A shares were subscribed with the warrants of Sampo’s year 1998 option programme during the year under review. The Board was able, during the year, to approve subscriptions for 66,100 shares with a counter book value of EUR 11,117.22. The new shares were accepted for trading in the Helsinki Exchanges as each lot is entered in the Trade Register. The remainder of the subscriptions was approved by the Board on 11 February 2004.
The number of staff decreased due to natural turnover and the staff reductions of the Finnish retail customer network. Staff reductions are necessary because traditional banking services are being transferred mainly to the Web Bank. Following the rationalisation negotiations carried out in June-September, Sampo’s staff was reduced by 346 employees. Nearly all reductions were implemented without redundancies. The rationalisation negotiations
Provisions for bad and doubtful debts 4 0 -1 -2 -5
Investment income and charges, revaluations and revaluation adjustments 84 101 151 51 81
Share of associated undertakings’ profi t 0 0 0 0 0
Net income from fi nancial operations -1 -3 -2 -3 -2
Depreciation and write-down of tangible and intangible assets 0 -5 -5 -5 -9
Income from companies accounted for by the equity method 1 1 -1 0 1
Banking and investment services The Group’s most important domestic banking and investment service companies are Sampo Bank plc, Sampo Fund Management Ltd, Mandatum Asset Management
Net income from fi nancial operations decreased to EUR 404 million (448), because the interest margin of deposits was narrowed by the fall in market interest rates. In 2003, Sampo Bank’s average interest spread between funding and lending was approximately 2.6 percentage points in 2003, which was approximately 0.7 percentage points lower than in the previous year. In the fi nal quarter, the decreasing trend in net income from fi nancial operations came to a halt, due to growth in the volume of lending, the relative stability of market interest rates and a slight widening in the spreads. Sampo Bank’s Prime interest rate was lowered three times, from 3.5 per cent to 2.5 per cent.
Fees and commissions receivable decreased slightly. Fees and commissions receivable from asset management increased due to growth in business and to structural arrangements made in the second half of 2002. Fees and commissions receivable from banking operations remained in total at almost the level of the comparison period, even though fees and commissions from payment transactions decreased, refl ecting the tight competition. In investment banking, fees and commissions were at a lower level than in the comparison period. The operations of the investment bank were rearranged in May by administratively separating stock brokerage from corporate fi nance function, by reorganising units and by improving cost effi ciency. The changes implemented and the slight upward trend in the stock market resulted in improved profi tability late in the year.
Dividend income increased by EUR 20 million. Net income from transactions in securities and foreign exchange dealing decreased by EUR 17 million. The fi gure for the comparison period included a sales profi t on debt securities amounting to EUR 18 million, which was related to balance sheet restructuring measures.
AS Sampo Pank in Estonia produced an operating profi t of EUR 6 million, and UAB Sampo bankas in Lithuania also recorded a profi t. Banking operations continued their strong growth in the Baltic countries where the number of customers increased during the year under review by 37 per cent. The fastest growth was achieved in Estonia, where AS Sampo Pank had approximately 90,000 customers at the end of the year.
Mutual fund savings focused on balanced funds and equity funds The mutual fund business developed favourably. In previous years, when the stock markets were in decline, Sampo sold mainly low-risk money market funds, which resulted in Sampo’s market share growing strongly and tens of thousands of customers learning about safe fund
saving. In the second half of 2003, Sampo focused on giving advisory services to the rapidly expanded customer base. Due to the pick-up in the stock markets, investments fl owed from money market funds to balanced funds and equity funds, and these were also the focus of new sales. In the future Sampo’s strong corporate image in mutual funds will be further strengthened, i.a. by developing new products.
Capital adequacy Because its operations are weighted more towards banking and fi nance than insurance, the capital adequacy of
The areas of focus in sales were the retail customer segment and especially unit-linked insurance. 21,449 new unit-linked policies were sold, which is 14 per cent more than in the corresponding period of the previous year. Unit-linked products accounted for 85 per cent (63) of all new sales. Moreover, in individual pension insurance in
EUR m 12/2003 12/2002 - deductions from capital **) -470 -441 Total capital 1,728 2,169 Risk-weighted assets 13,909 12,519 Capital adequacy Total capital/Risk weighted assets 12.4% 17.3% Tier 1/Risk weighted assets 13.5% 18.7%
(75, 5§), permitting the non-deduction from its capital investments in companies whose main business area is investment activity. The exemption remains valid until 31 December, 2006.
particular, unit-linked policies were dominating the sales. Sampo Life launched a new investment insurance product linked to the Positive 2008 mutual funds and containing a capital guarantee. This new product was sold to the value of EUR 44 million.
On 31 December, 2003 the market value of investment assets (excluding unit-linked insurance investments) was EUR 5.5 billion (5.2), of which 59 per cent (62) was invested in fi xed-income instruments, 35 per cent (30) in equities and 6 per cent (6) in real estate. In accordance with the regulatory reporting requirements, the share of equity investments comprises 6 percentage points of investments in fi xed income funds. Finnish investments accounted for 48 per cent, those elsewhere in the euro zone for 24 per cent and other foreign investments for 28 per cent. 48 per cent of the equity investments were in Finland, 2 per cent elsewhere in the euro zone and 50 per cent outside the euro zone.
The solvency of the Group’s life insurance companies increased to 18.0 per cent of technical provisions on own account (12.9). The corresponding solvency ratio for Sampo Life was 17.8 % (12.4). Sampo Life’s solvency margin was EUR 852 million (581) or more than four times the minimum requirement.
According to the accounting practice based on the principle of fairness introduced in Sampo Life at the beginning of 2002, the company’s owners’ share of valuation differences has been standardised at 25 per cent. On 31 December, 2003, therefore, EUR 91 million (59) was allocated to shareholders from a total of EUR 363 million in valuation differences (234). In 2003, 3.75 – 4.95 per cent returns were credited to insurance savings entitled to customer credits, depending on the type of insurance. Technical provisions include customer bonuses amounting to EUR 20.7 million (36.7) awarded for 2003, which were fi nanced from earlier reserves. At the end of the year under review, the provision for future additional benefi ts was EUR 45.1 million (72.1).
The highest guaranteed interest rate allowed for Finnish life insurance companies was decreased to 2.5 per cent for all individual policies and capital redemption policies that came into force after 1 March, 2003.
The holding company’s balance sheet total was EUR 3.0 billion. Of this amount, holdings in banking and investment services companies accounted for EUR 1.6 billion and holdings in insurance companies for EUR 0.5 billion. Other investments totalled EUR 0.5 billion. At the end of the year under review, the holding company had 82 fulltime employees (90).
The premiums written by Sampo’s associated company, If, increased to SEK 38.9 billion (38.1). The company’s combined ratio for the year under review was 100.9 per cent (106.1) and for the fi nal quarter 99.0 per cent (104.9). The signifi cant improvement in the combined ratio derives from both reduced costs and a better risk ratio. The operating profi t for the year under review was SEK 2.7 billion, whereas one year earlier it had been a loss of SEK 2.1 billion. Sampo’s share of If’s profi t for the year was EUR
Preparation for adoption of International Accounting Standards (IFRS) In 2001 the EU Commission proposed a Regulation on the adoption of the IFRS/IAS standards in the EU. According to the Regulation, all EU listed companies must prepare their consolidated accounts in accordance with the IFRS standards starting no later than 1 January, 2005. The EU Parliament and the Council of the European Union adopted the Regulation in June 2002.
The work has advanced on schedule and has included an investigation of the effects of the changes on Sampo’s fi nancial reporting. Concerning the Group accounts for 2005, the most signifi cant changes will be the valuation of the available-for-sale fi nancial assets at fair value instead of the present practice of using the lower of cost and market value, and the valuation of all derivatives at fair value. The standard for insurance contracts is still open and it is estimated to enter into force in 2007.
Further information will be published about the effects of the changes during 2004, after the content of the key standards becomes more precise. Sampo Group will present its fi rst IFRS fi nancial accounts for the fi rst quarter of 2005.
Due to the delayed rise of short-term interest rates, growth in net income from fi nancial operations in bank-
It is expected that the combined ratio of the associated company, If, will stay below 100 per cent for the whole of 2004 and that the company’s result will be good.
Sampo Group’s result is expected to improve from 2003. The streamlining of the capital structure and the cost reductions already implemented will raise the return on equity.
Net income from transactions in securities and foreign exchange dealing 2 from transactions in securities 2 15 from foreign exchange dealing 10 14
Depreciation and write-down of tangible and intangible assets 4 -33 -32
Depreciation and write-down of tangible and intangible assets 19 -15 -29
EUR m Notes 2003 2002 Life insurance business assets Intangible assets 39
Net income from transactions in securities and foreign exchange dealing 16 from transactions in securities 4 -4 from foreign exchange dealing -1 -1
EUR m Notes 2003 2002 ASSETS Loans and advances to credit institutions 47, 83, 84
Loans and advances to customers 48, 50, 83, 84 4 13
Business risks Sampo Group provides a wide range of fi nancial services for its customers and each company in the Group has its own separate business role defi ned by strategy. The clear division of responsibilities leads to minimal overlaps in risk-taking. Sampo Group’s policy is to generate results mainly from customer business and thus the role of risktaking unrelated to that is kept negligible. A suffi cient return on allocated capital is the basis for pricing products and services.
Economic Capital 2002–2003, EUR m capital adequacy is also monitored by the supervisory authorities which in Finland are the Financial Supervision Authority and the Insurance Supervision Authority. The capital adequacy and solvency margins are presented in the key fi gures.
Economic capital refl ects not only the amount of the different kinds of risks, but also slightly their mutual diversifi cation effect. Not all risks in the Group’s business areas will necessarily materialise at the same time. For example, possible legislative changes in the fi eld of long-term savings will affect the Group’s businesses and subsidiaries in very different ways. The magnitude of diversifi cation effects at the Group level is about 20 per cent.
The economic capital required by market and credit risks is calculated by means of the Group’s Value at Risk method. The method uses Basle 2 Standard Approach as the capital requirement for operational risks. Business risks are measured by business area in terms of the volatility of the operating profi t.
The economic capital was introduced in 2003. The economic capital tied up in the Group’s operations increased during the year by about EUR 260 million (14 per cent). At the same time the minimum capital adequacy requirements increased by about EUR 140 million (10 per cent).
Management of Credit Risks Credit risks refer to variations in results caused by customers or counterparties failing to meet their commitments. Credit risks include counterparty, country and settlement risks.
The Group’s Rating Committee, which is independent of the credit decision process, decides on all signifi cant ratings. The use of the credit decision-making authority is controlled by the limits set for countries, customers, customer groups and products and by reporting requirements.
In addition, the ratings of listed customers are monitored by Moody’s KMV® model which estimates Expected Default Frequencies (EDF) by combining stock market and fi nancial statements information.
Assessing and monitoring the credit risks of retail customers The creditworthiness of retail customers is assessed by comparing the customer’s income, or that of his or her family, with living expenses and debt repayment obligations. Uncertainties related to the estimation of creditworthiness are covered by collateral which, in the case of long-term loans, is usually a dwelling. In the case of smaller unsecured loans, the creditworthiness of personal customers is assessed by credit scoring, which estimates the customer’s ability to repay the loan. The incidence of delayed loan repayments and the development of non-performing loans are monitored and reported on continuously.
Collateral rating All collateral is valued at the time it is pledged and regularly thereafter. The collateral value is divided into four quality categories on the basis of the volatility and liquidity. Only the share of the value of the collateral in the best quality categories is taken into account in calculating the customer’s collateral defi cit.
Measurement of credit risks Sampo Bank has utilised a credit portfolio model since 1999 to quantify its credit risks. The model estimates expected credit losses and economic capital for credit risk based on a large number of scenarios concerning the evolution of counterparty ratings and defaults. The estimate for risk capital is over a three year horizon and based on a confi dence level of 99.9 per cent. The counterparty level inputs to the model are the default and transition probabilities implied by Sampo ratings and the estimated loss given default. The latter is a function of the counterparty’s exposure and collateral position, and its estimated other recoverables. The loss given default estimate has been designed to take into account the expected depression in collateral values during recessions.
Credit risks in 2003 The fi gures in the tables describe the outstanding exposures of customers of Sampo Group, excluding the life insurance business outside Finland. The internal receivables of Sampo Group companies have been eliminated from the fi gures. Exposures are primarily categorised according to customers or counterparties. However, in cases where the credit decision was based on the creditworthiness of a guarantor, they are categorised according to the guarantor. Geographical reporting is based on the country of registration of the customer or guarantor. The reporting of credit risks covers all agreements and derivative contracts, both on and off-balance sheet, with which they are associated.
Sampo Group’s outstanding exposures to customers increased by about EUR 1 billion or 4 per cent during the year, and stood at EUR 25 billion at the end of the year.
In terms of geographical area, 94 per cent of all credit risks were in EU countries. The amount of exposures in Finland grew by 11 per cent while at the same time the exposures to EMU and EU countries were slightly reduced. Exposures to Asian countries decreased by over one fi fth. The EUR 609 million in exposures to Eastern Europe had grown by 61 per cent, with Estonia accounting for EUR 221 million, Lithuania for EUR 168 million, Poland for EUR 17 million and Russia for EUR 9 million. Exposures to Middle East countries were reduced by 46 per cent to EUR 11 million.
Exposures to customers in default and provisions for bad and doubtful debts Exposures to customers in default (due to bankruptcy, corporate or debt restructuring, failure to pay, non-interest earning loans, booked provisions for bad and doubtful debts) stood as follows: Corporate and institutional customers 68 100
The above exposures totalling EUR 121 million are secured with category I-IV collateral totalling about EUR 75 million. Additionally, the Group has made specifi c provisions pooled by customer group, totalling EUR 37 million. These provisions have not been deducted from the above fi gures.
Total exposures to corporate and institutional customers in default decreased by EUR 32 million, including nonperforming loans of EUR 29 million. The latter decreased by EUR 9 million during the year. The decrease in nonperforming loans was mainly due to the customer or guarantor making the payments that were in default.
US, CA, JP, AU, NZ, Other Western Europe 778 3 1,263 5
Wholesale and retail distribution 896 10 860 10 *) the segmentation has been adjusted and the fi gures for 2002 have been made comparable.
Domestic retail 30 39 Foreign retail 2 2 Total retail customers 33 41
Domestic retail 1 -4 Foreign retail 1 1 Total retail customers 2 -3
Domestic corporate and institutional -8 -2 Foreign corporate and institutional 5 4 Total corporate and institutional -3 2
The Group’s Asset and Liability Committee (ALCO) sets limits, control parameters and risk taking authorisations for market risks in banking activities and formulates the main risk-taking policies for the Boards of operating companies.
Sampo Bank’s Trading unit operates within limits and authorisations which are monitored daily by an independent risk control function. ALCO guides the risk-taking of trading through limit setting.
At the Group level, Sampo Bank is the main debt issuer.
Retail market demand deposits and loans for customers comprise the core of the Sampo Bank’s euro-denominated banking book. The banking book also includes wholesale funding items, investments in money market and fi xed income instruments and hedging derivatives. All of these items are used to modify the liquidity and the interest rate risk exposures of the banking book and capital adequacy in general.
In Finland, banks loans to customers are mostly linked to Euribor rates, contrary to the majority of retail demand deposits, the interest rates of which are determined by the banks themselves based on general interest levels and the competitive situation. When low rates prevail, the interests paid on deposits are slower to adapt to decreases in market rates than interests received on loans.
A key task for Asset and Liability management is to maintain a hedge, that compensates a possible contraction in net income from customer operations.
The adjacent table shows the effect such a rise would have had on the combined non-trading position of Sampo Bank and Sampo Credit.
Liquidity risks in the banking book Liquidity risks can be defi ned as earnings volatility caused by changes in funding costs, or as problems in the availability of funding. Liquidity risks arise in situations of general credit market turmoil or a lack of confi dence in individual borrowers.
Net of euro-denominated items 574 -1,288 -480 -39 1,468 236 98
Liabilities denominated in other currencies 883 177 55 347 220 1,682 2,089
Net of items denominated in other currencies -146 302 -22 -228 -179 -274 -184
Trading items are reported at the shortest maturity and market value. Account assets are reported at different maturities. The calculations only include balance sheet items. For example, undrawn loans or overdraft facilities are not included. Due to changes in exchange rates, assets and liabilities in different currencies do not balance, because the table does not include derivative instruments.
Investment risks of the Insurance Business The investment operations of Sampo Life aim at achieving the highest possible returns at acceptable levels of risk, to ensure that Sampo Life will, under all circumstances, exceed the required solvency ratio and have suffi cient and structurally suitable investment assets to cover the company ’s technical provisions. The biggest risks threatening investment performance are decreases in the value of the investment, and returns that are lower than that required by technical provisions. The intention is to limit these risks by diversifying the investment portfolio as far as possible by instrument, sector and country. Currency risks are managed by keeping assets and liabilities suffi ciently balanced across currencies or by using derivatives. If necessary, derivatives are also used to hedge the investment portfolio against value decreases. The adjacent graphs show the allocations of Sampo Life’s portfolio.
The investment policy also includes guidelines on the use of derivatives. The maximum possible risk when using derivatives is monitored every month using the Valueat -Risk technique.
Investment operations achieved a return of 9.5 per cent in 2003. The year was particularly good in terms of equity investments. On the fi xed income side there was an expectation of rising interest rates and therefore short-term interest-bearing instruments were heavily favoured. The distribution, current values and valuation differences of the investments of life insurance operations are presented in the notes to the accounts. The largest shareholdings are listed in note 42.
4 Raw Material Indices 1% 5 Real Estate 6% 6 Privat Equity 5% 7 Hedge Funds 3%
Fixed Income Portfolio 3,554 EUR m, 1 Money Market 40% 2 Euro Governments 35% 3 Euro Investment Grade Credit 14% 4 US Govt/Agency/Credit 5% 5 US High Yield 5%55 6 Emerging Markets 1%
Group pension (guaranteed rate 3.5%) 2,224 42.3% Individual pension insurance 1,214 23.1%
Future bonus reserves 45 0.9% Reserve for decreased discount rate (individual policies) 114 2.2% Assumed reinsurance 40 0.8% Other reserves 11 0.2% Technical provisions total 5,252 100%
TOTAL FIXED INCOME PORTFOLIO, 31 DECEMBER 2003 Market Value, EUR m
In individual policies sold before 1 January 1999 the guaranteed interest rate is 4.5 per cent. With respect to these policies, the discount rate used in discounting technical provisions has been decreased from 4.5 per cent by increasing technical provisions by EUR 114 million.
Technical risks of insurance The insurance business is based on risk and its management. Risk arises from the randomness in timing and quantity of insurance events. Insurance premiums are defi ned prudently on the basis of claims experience.
The most signifi cant of the technical risks related to pension insurance is the increase in life expectancy. In group pension insurance, the assumed life expectancy was raised in 2002, as a result of which Sampo Life supplemented the existing technical provisions by EUR 48 million. The raise in life expectancy also increased future premiums. In individual pension insurance the abovementioned risk is smaller due to the fi xed term of the policies and the structure of the products.
The business areas are responsible for organising and monitoring the management of operational risks. These risks are primarily controlled by making processes effi cient and clear, by maintaining personnel competence and by regular reporting. The Group’s risk management organisation, on the other hand, develops procedures to manage operational risks, co-ordinates the operations of the units and takes responsibility for the risk reporting of management. Internal auditing monitors the adequacy and effi ciency of the Group’s internal control, while the Compliance function monitors the adherence to regulations and guidelines and the validity of fi nancial information.
The incident management of operational risks has been started in several units. This work will be expanded in spring 2004.
In calculations of economic capital, the capital required by operational risks is allocated to the business units in accordance with the Basel standard method.
Compliance with the new Capital Adequacy Framework (Basle 2) The aim of the EU’s capital adequacy framework reform is to increase the risk sensitivity of banks’ capital adequacy calculations, and to encourage banks to develop their internal risk management systems in line with the recommendations of the Basle Committee. According to the pro-
Risk Management posal on capital adequacy, banks can select the method of calculating capital adequacy that is the most appropriate for the bank’s own risk management system. The reform aims at maintaining the capital base in the international banking system at its present level. The new capital adequacy framework will affect all credit institutions and investment fi rms in the EU. The reform will probably come into force at the end of 2006.
The Basle 2 compliance project currently underway in Sampo is responsible for Sampo Group’s full compliance with the new framework. The biggest changes affecting Sampo’s capital adequacy calculations are the new capital adequacy requirement for operational risks and the possibility to use the Internal Ratings Based approach for calculating credit risks. As mentioned above, an internal rating system of corporate customers has been in use in Sampo for several years. During 2003 a rating system for retail customers was also introduced. In addition, the main data sources and risk evaluation methods for the new capital adequacy calculations have been under development.
Regulations governing preparation of the accounts Sampo Group engages in banking and investment services, life insurance business and holding company business. The consolidated accounts of Sampo Group have been prepared in accordance with the Decree of the Finnish Government on the consolidated accounts of fi nancial services and insurance groups.
Scope of consolidation The Group accounts include the accounts of Sampo plc and all its domestic and foreign subsidiary and associated undertakings, either directly or indirectly owned.
Details of the subsidiary undertakings included in the Group accounts are given in note 93.
Intra-Group transactions, assets and liabilities, gains and losses, and distribution of profi t have been eliminated. Inter-business transactions and assets and liabilities have not been eliminated line by line, but are shown as a separate item by line of business.
Based on the regulations of the Insurance Supervision Authority, intra-Group direct insurance is not eliminated, because it is not required for the purpose of giving a true and fair view.
Intra-Group shareholdings have been eliminated by using the acquisition method. Accordingly, the difference between the acquisition cost and capital and reserves of the subsidiary companies at the date of acquisition has been allocated to the identifi able balance sheet items and is depreciated according to the plan applied to those items. The unidentifi able part of the difference has been treated as goodwill and capitalised as an intangible asset. It will be amortised through the profi t and loss account over its expected useful economic life.
Those subsidiaries which are engaged in other than banking and investment services have been dealt with by using the equity method of accounting. Primasoft Oy, a company owned by Sampo and TietoEnator Oy which produces IT-services, has also treated in Sampo’s Group accounts using the equity method. The Financial Supervision has, by its decision of 30 January 2004, Journal no. 1/315/2004, required that Primasoft Oy should be consolidated in full in the Group accounts. The change in the method of consolidation has no impact on the Group’s profi t or capital and reserves. The new treatment will be started from 1 January 2004.
The treatment of untaxable reserves and depreciation in excess of, or less than, plan is described under the heading “Taxes and Appropriations” later in these accounting policies.
Associated undertakings Associated undertakings are included in the Group accounts by using the equity method of accounting. The Group’s holding in
Banking and investment services and holding company business The assets, liabilities and off-balance sheet items denominated in other currencies than euro have been translated into euro at the European Central Bank’s middle rate on the balance sheet date.
Life insurance business Receivables, investments characterised as receivables, liabilities and off-balance sheet items denominated in other currencies than euro have been translated into euro at the European Central Bank’s middle rate on the balance sheet date.
Exchange rate differences arising from investments and underwriting business are broken down in note 13 “Net investment income”.
Valuation principles The Group valuation principles are presented by line of business to the extent that they differ from each other. The differences result from different accounting regulations in the banking and insurance business.
Loans and advances and liabilities are stated in the balance sheet at the value paid or received for them at the time of acquisition, adjusted for the amortisation of premiums and discounts arising on acquisition. In the profi t and loss account, the amortisation of premiums and discounts is accrued as interest receivable or interest payable over the life of the contract.
The purchase price is treated as a loan and the selling price as a liability in the relevant balance sheet item with respect to each counterparty. The difference between the resale price and the purchase price of a purchased security is treated as interest receivable and accrued income over the life of the contract. Conversely, the difference between the repurchase price and the sale price is treated as interest payable and accruals over the life of the contract.
In the consolidated profi t and loss account, the lease payments less depreciation according to plan is included in “Interest receivable”. The additional depreciation, which is actually write-downs of lease assets, is included in “Provisions for bad and doubtful debts”. Other income from and expenses of lease assets are included in the item that corresponds with their nature.
Securities are classifi ed as securities held for trading purposes and those held as fi nancial fi xed assets, the basis for classifi cation being defi ned as is explained below.
The premiums and discounts arising on the acquisition of debt securities, if material, have been amortised or accreted over the life of the contract and included in “Interest receivable ”. The cost of the security is adjusted to refl ect the amortisation or accretion of the premiums and discounts.
Securities held as fi nancial fi xed assets consist of treasury bills and other eligible bills and debt securities acquired with the intention of holding them until maturity. In addition, shares and participations in companies needed in order to acquire services ancillary to banking, and in subsidiary and associated undertakings, are treated as securities held as fi nancial fi xed assets.
Securities held as fi nancial fi xed assets are stated at cost less any permanent diminution in value. The permanent diminution in value of these securities is shown separately in the profi t and loss account under the heading “Write-offs in respect of securities held as fi nancial fi xed assets”. The item also includes the potential write-backs of these securities.
Intangible assets are stated at cost, less amortisation according to plan. Long-term expenditure includes capitalised IT systems and costs of material improvements in fl ats and rented premises.
Receivables and investments that can be characterised as receivables are stated at their nominal value or at the lower current value. Credit losses relating to investments that can be characterised as receivables are treated as value adjustments.
Investments covering the technical provisions for unit-linked insurance are valued at their current value.
The current value of publicly traded shares and debt securities is stated as the buying rate on the balance sheet date or, if this is not available, the latest transaction rate. The current value of not publicly traded equity shares and debt securities is stated i.a. as the remaining acquisition cost or the estimated probable transaction price. The current value of shares in other insurance companies is stated as the prudently estimated probable transaction price or, if not available, the net asset value. The current value of shares in Group companies is stated as the net asset value or remaining acquisition cost, while that of shares in associated companies is regarded as the value calculated according to the equity method of accounting or the net asset value.
The current value of loans, deposits with credit institutions and deposits with ceding undertakings is stated as the nominal value or the estimated lower probable value.
Intangible and tangible assets are stated at cost less amortisation according to plan. Long-term expenditure includes IT systems and improvements made in fl ats and rented premises. Tangible assets include equipment.
In calculating technical provisions, various methods are applied involving assumptions on matters such as mortality, morbility, yield level of investments, future operating expenses and the settlement of claims. Technical provisions are annually revised on the basis of assumptions and new data received.
The change in the technical provisions of reinsurance has been calculated at fi xed rates of exchange. Therefore, the impact of the exchange rates in the underwriting business on the results has been included in “Investment income” in the profi t and loss account.
The guaranteed interest rate used in the calculation of technical provisions of a Finnish life insurance company is in compliance with the calculation basis approved by the company’s Board of Directors and fulfi ls both the decrees (248/1999 and 56/2003) of the Council of State and the requirements of regulation 1999:65 of the Ministry of Social Affairs and Health. The guaranteed interest rate used in the direct insurance premium basis varies on the basis of the starting date of the insurance: 2.5 per cent, if the insurance was granted on 1 March 2003 or thereafter; 3.5 per cent, if the insurance was granted no earlier than 1 January 1999 and no later than 28 February 2003; a maximum of 4.5 per cent, it the insurance was granted before January 1999. The discount rate used in the calculation of technical provisions is 3.5 per cent in the great majority of the technical provisions. Due to the difference in the discount rate of technical provisions and the guaranteed interest of policies commenced prior to 1 January 1999, supplementary provisions of guaranteed interest have been added to technical provisions. The supplementary provisions for guaranteed interest were supplemented on 31 December 2003 by an amount which will give, in practise, a discount rate of approximately 3.5 per cent for the payments already made for the agreements in question.
Recoveries of loans and advances and other items previously written off, releases of provisions, and profi ts on the sale of assets acquired in settlement of unpaid loans have been deducted from “Provisions for bad and doubtful debts”.
In the accounts of the individual Group undertakings, the untaxed reserves and the difference between the depreciation according to plan and the amount deductible in corporate taxation are shown as a separate item in companies’ profi t and loss accounts under “Appropriations” and in balance sheets under “Accumulated appropriations”. The appropriations shown in the individual profi t and loss accounts and balance sheets are presented without deducting the deferred tax liability arising from them.
The untaxed reserves and depreciation difference included in the capital and reserves have not been included in distributable items when calculating the maximum amount of the distributable profi t.
Derivative contracts which are accounted for as hedges are treated in the accounts in accordance with the treatment of hedged contracts. Interest on interest rate contracts used to hedge loans and advances, liabilities and debt securities held as fi nancial fi xed assets are included in “Net income from fi nancial operations”, while profi ts and losses on derivative contracts that are used to hedge securities held for trading purposes are included in “Net income from transactions in securities and foreign exchange dealing”.
In notes 2 and 16, “Net income from securities transactions ”, the item “Net income from transactions in debt securities” also includes the profi ts and losses on interest rate contracts. Profi ts and losses on equity contracts are included in “Net income from transactions in equity shares”. Profi ts and losses on exchange rate contracts are included in “Net income from foreign exchange dealing”. Assets and liabilities arising from derivative contracts are presented in “Other assets” and “Other liabilities” in the balance sheet.
Life insurance Derivative contracts are valued at the current value on the balance sheet date.
As hedging derivatives have been treated foreign exchange derivatives, which have been designated and documented as hedging instruments at the inception of the hedge and been highly effective, evidenced by hedge accounging.
Revenue Banking and investment services revenue + life insurance revenue + holding company revenue
Calculated using the formula shown above for banking and investment services revenue
Operating profi t Banking and investment services operating profi t + life insurance operating profi t + holding company operating profi t
+ interest income - interest charges + dividend income + fees and commissions receivable - fees and commissions payable + net income from transactions in securities and foreign exchange dealing + other operating income - administrative expenses - depreciation and write-downs of tangible and intangible assets - other operating expenses - provisions for bad and doubtful debts - write-offs in respect of debt securities held as fi nancial assets ± income from companies accounted for by the equity method
± technical result before bonuses and rebates and change in the equalisation provision ± other income and charges ± income from companies accounted for by the equity method
+ capital and reserves (excl. preferred capital notes in banking operations) + minority interest ± valuation differences on investments after deduction of deferred tax *) (average of values on 1 Jan. and 31 Dec.)
Return on assets (at current values), % + operating profi t + interest and other fi nancial charges + calculated interest on technical provisions ± revaluation entered into / withdrawn from revaluation reserve ± change in valuation differences on investments *)
Revenue Formula shown above in connection with calculation of Group key fi gures.
Operating profi t Formula shown above in connection with calculation of Group key fi gures.
Operating profi t Formula shown above in connection with calculation of Group operating profi t.
Solvency ratio, % of technical provision + solvency capital x 100 % + technical provisions - equalisation provision - 75 % x technical provisions relating to unit-linked insurance
Earnings per share + profi t before extraordinary items and tax - tax ± minority interest adjusted average number of shares
Return on assets (at fair values) % 1.8 0.8 -1.6 1.4 6.8 27.6
Net income from fi nancial operations EURm 404 448 469 426 392
Sampo Sampo Sampo Sampo Sampo- Sampo Group Group Group Group Leonia Group
Capital and reserves per share EUR 5.43 5.15 5.18 5.52 4.91 3.28
Net asset value per share less full deferred tax from holding company’s valuation differences EUR 5.69 5.29 5.87 8.81 9.31
Net asset value per share less full deferred tax from the Group’s valuation differences EUR 5.64 5.26 5.67 8.40 8.74
Adjusted average number of shares 1,000 553,859 555,730 555,588 522,535 - 304,000
Adjusted number of shares at 31 Dec. 1,000 553,920 553,853 555,623 520,000 - 304,000
Adjusted number of shares at 31 Dec. 1,000 552,720 552,653 554,423 518,800 - 302,800
Adjusted share price, high EUR 8.53 9.95 12.70 12.20 - 8.20
Adjusted share price, low EUR 5.05 6.02 7.70 5.87 - 5.14
Adjusted number of shares at 31 Dec. 1,000 1,200 1,200 1,200 1,200 - 1,200
Key Figures *) The internal dividends and sales profi ts between the different lines of business have not been eliminated in the result analysis and specifi cations or key fi gures of banking and investment services and life insurance business. In the Group operating profi t they have been eliminated. Furthermore, the profi t or loss corresponding to the share held in the associated company If has been added or deducted in the operating profi t. Therefore, the Group operating profi t is not equal to the sum of business area operating profi ts.
**) The solvency ratio group per 31 December 2001 was created on 31 March 2001 as the parent company became a holding fi gure for the reference year has been calculated from the equivalent date. ***) The dilution effect for 2003 has beeen calculated as if all the remaining subscriptions (3,089,870) entitled to would have been realised. One subscription right entitles to subscribe for 5 shares. In 2002, there were 3,159,340 possible subscription rights.
The “Result of P&C operations” in consolidated Profi t and Loss Account includes the result of the If Group, acting as an associated company. The P&C insurance results for the comparison years have also been presented on one line similar to the associated company and the key fi gures have been changed accordingly.
Notes to the profi t and loss account Banking and investment services 1 Interest receivable and payable 2 Net income from transactions in securities 3 Other operating income and expenses 4 Depreciation and write-downs of tangible and intangible assets 5 Provisions for bad and doubtful debts plus write-offs in respect of debt securities held as fi nancial fi xed assets 6 Segmental information on income and staff
Life insurance business 7 Premiums written 8 Claims paid 9 Total operating expenses by activity 10 Staff costs 11 Emoluments of members of administrative and supervisory bodies 12 Average staff numbers 13 Net investment income 14 Other income and charges
Holding business 15 Interest receivable and payable 16 Net income from transactions in securities 17 Other operating income and expenses 18 Provisions for bad and doubtful debts plus write-offs in respect of debt securities held as fi nancial fi xed assets 19 Depreciation and write-downs of tangible and intangible assets 20 Segmental information
Group 21 Extraordinary items 22 Income taxes 23 Segmental informatio of the Group by class of business 24 Elimination items in consolidated profi t and loss account
Balance sheet notes Banking and investment services assets 25 Treasury bills and other eligible bills 26 Loans and advances to central banks included in loans and advances to credit institutions 27 Loans and advances to customers 28 Non-performing and other non-interest earning loans 29 Assets acquired in settlement of unpaid loans and those acquired in connection with the reorganisation of a customer’s business operations 30 Subordinated loans 31 Lease assets 32 Debt securities 33 Shares and participations 34 Movements in shares and participations held as fi nancial fi xed assets and in tangible assets 35 Intangible assets 36 Properties and shares in property companies 37 Other assets 38 Prepayments and accrued income
Holding business assets 47 Loans and advances to central banks included in loans and advances to credit institutions 48 Loans and advances to customers 49 Assets acquired in settlement of unpaid loans and those acquired in connection with the reorganisation of a customer’s business operations 50 Subordinated liabilities 51 Debt securities 52 Shares and participations 53 Movements in shares and participations held as fi nancial fi xed assets and in tangible assets 54 Intangible assets 55 Properties and shares in property companies 56 Other assets 57 Prepayments and accrued income
Holding business liabilities 79 Unamortised discounts and premiums on liabilities 80 Debt securities in issue 81 Other liabilities 82 Accruals and deferred income 83 Maturity analysis of assets and liabilities, by remaining maturity 84 Assets and liabilities denominated in domestic and foreign currencies 85 Deferred tax 86 Assets pledged as collateral security and secured liabilities as well as other assets pledged on behalf of the company and other Group undertakings 87 Pension liability 88 Off-balance sheet items 89 Other liabilities and contingent liabilities
Group 90 Staff numbers 91 Emoluments of members of administrative and supervisory bodies 92 Loans and advances to and guarantees on behalf of members of administrative and supervisory bodies 93 Group subsidiaries 94 Associated undertakings of the Group 95 Elimination items in the consolidated balance sheet
Other interest payable -16 -19 2 Net income from transactions in securities Debt securities and interest rate derivatives -14 11
Other income from transactions in securities 0 3 Other operating income and expenses Other operating income
Other expenses 24 22 4 Depreciation and write-downs of tangible and intangible assets Depreciation according to plan on tangible assets 10 8 on intangible assets 23 24
Gross Releases and Gross Releases and EUR m amount recoveries amount recoveries 5 Provisions for bad and doubtful debts plus write-offs in respect of debt securities held as fi nancial fi xed assets Provisions for bad and doubtful debts
By geographical segment *) The fi gures do not include the revenue of 108 EURm nor the staff of 585 of the group company Primasoft Oy. The company provides computer services and is owned by Sampo plc and Sampo Bank plc. Eur 65 million of Primasoft`s revenue came from Sampo Group. In the consolidated fi gures it is accounted for by the equity method.
Income includes net income from fi nancial operations, dividend income, fees and commissions receivable, net income from transactions in securities and foreign exchange dealing and other operating income. Intragroup items have not been eliminated.
Commissions on reinsurance ceded and profi t participations (-) -2 -1
Members and deputy members of the Board of Directors 0.0 0.5
Net investment income 44 -52 14 Other income and charges Other income
Liabilities to credit institutions and central banks 0 7 0 -
Profi t on disposal of properties and property companies 3 44 3 4
Gross Releases and Gross Releases and Gross Releases and Gross Releases and EUR m amount recoveries amount recoveries amount recoveries amount recoveries 18 Provisions for bad and doubtful debts plus write-offs in respect of debt securities held as fi nancial fi xed assets Provisions for bad and doubtful debts
Parent Parent Group Group Company Company 19 Depreciation and write-downs of tangible and intangible assets Depreciation according to plan
Group Group Group Group Parent Parent Parent Parent 2003 2003 2002 2002 Company Company Company Company
Average Average Average Average staff staff staff staff EUR m Income number Income number Income number Income number 20 Segmental information By class of business
Income includes net income from fi nancial operations, dividend income, fees and commissions receivable, net income from transactions in securities and foreign exchange dealing and other operating income. Intra-group items have not been eliminated.
Change of accounting polices due to the If business transaction - 108
Amortisation of group goodwill - 97 22 Income taxes Income taxes
Sampo Group 2003 Staff 2002 Staff EUR m Income*) number**) Income*) number**)
Banking and Investment Services 25 Treasury bills and other eligible bills Treasury bills 28 -
+ New provisions for year 21 21 - Releases of provisions -10 -10 - Provisions written off -7 -11
36 Properties and shares in property companies 31 Dec. 2003 Land and buildings
Properties and shares in property companies occupied for other than own activities 31 December 2003 Capital Net Unlet Area employed 1) income 2) space3)
Water areas and agricultural and forest land - - - -
Property for letting under fi nance lease 91,785 64 3.9 0.0
Banking and Investment Services 37 Other assets Items in transit 9 13
Derivative contracts 364 239 38 Prepayments and accrued income Accrued interest 111 114
The remaining acquisition cost of debt securities comprises: Amortised premiums and discounts have been added to (+)
Valuation difference (difference between fair value and book value) 331 230
EUR m property companies undertakings 41 Changes in investments in land and buildings Acquisition cost, 1 Jan. 408 0
Holding Book value Current value No. of shares % EURm EURm 42 Shares and participations in other than subsidiaries and associated companies Listed companies
Book Fair No. of Holding value value Country shares % EUR m EUR m
EQT Northern Europe UK No. I L.P. UK - - 13 13
Investor Capital Partners - Asia Fund L.P. Bermuda - - 5 5
Group goodwill, 31 Dec. - 44 Other loans by security Bank guarantee - -
Parent Parent Group Group Company Company 47 Loans and advances to central banks included in loans and advances to credit institutions Loans and advances to credit institutions 55 51 55 50 of which to central banks - - - 48 Loans and advances to customers Loans and advances to customers by geographical area
Financial and insurance institutions 2 2 2 2 49 Assets acquired in settlement of unpaid loans and those acquired in connection with the reorganisation of a customer’s business operations Book value of assets pledged as collateral security and acquired by the Bank in settlement of unpaid loans
Shares and participations acquired in connection with the reorganisation of a customer’s business operations - 0 - 0 50 Subordinated loans Loans and advances to customers 4 4 4 4
Amounts include due from Group undertakings 19 37 19 37 due from associated undertakings - - - 51 Debt securities Book value
Parent Parent Group Group Company Company 52 Shares and participations Book value of shares and participations, total 214 169 214 170
Shares and participations in property companies *) Properties and shares in property companies occupied for other than own activities 31 December 2003
Properties and shares in property companies occupied for other than own activities 31 December 2003 Group Group Parent Parent Parent
Capital employed in properties occupied for other than own activity by net income, % Net Income Capital Net income Capital
Total 136 Total 138 1) The capital employed is the depreciated cost of an asset which, in case of shares in property companies, is added by Group’s share of liabilities relating to equity shares in these companies and/or share of debts of these companies.
2) The net income % is a proportion of the net income to the capital employed and has been calculated by property. 3) The unlet space % is a proportion of the unlet space to all spaces which can be let out. Unlet spaces are spaces which can be let out, but which yield no rental income based on a lease on the balance sheet date.
EUR m 58 Movements in consolidated capital and reserves 1 Jan. - 31 Dec. 2003 Share capital, 1 Jan. 94
Information about Sampo’s shares and shareholders is presented in the Annual Report, pages 30-32.
Subordinated liabilities 0 0 62 Debt securities in issue Book value at end of year
Other Other Euro Currencies Euro Currencies 67 Assets and liabilities denominated in domestic and foreign currencies Assets
Debt securities 7 10 70 Pension liabilities The basic and supplementary pensions of the staff in the domestic Group companies have been arranged with insurances, while those in foreign subsidiary companies have been arranged according to the local practice.
Banking and Investment Services 71 Rental commitments The rental payments in 2004 16 13
Other commitments 3 3 of which to or on behalf of Group undertakings - of which to or on behalf of associated undertakings 1 1 of which to or on behalf of Group undertakings - of which to or on behalf of associated undertakings 1 2
Contracts settled on a net basis **) 253 53 217 47 *) Options for hedging purposes are embedded options attached to funding and derivatives hedging funding. The values of underlying instruments are included both in purchased and written options and in items interest rate swaps, interest rate and cross currency swaps and other equity contracts. No separate credit equivalent amounts have been calculated for embedded options attached to derivative contracts, but the market values of the embedded options are included in the credit equivalent amounts of those contracts.
Reinsurers’ share 0 0 76 Long-term liabilities (5 years or longer) Amounts owed to credit institutions 0 0 77 Deferred tax Deferred tax liablities
For other purposes underlying instruments 364 315 fair value 12 7
Parent Parent Group Group Company Company 79 Unamortised discounts and premiums on liabilities Discounts
Liabilities to credit institutions and central banks - - - -
Debt securities in issue 2 2 2 2 80 Debt securities in issue Book value at end of year 82 Accruals and deferred income Deferred interest 1 0 1 0
Liabilities to credit institutions and central banks - 70 - 70
Liabilities to credit institutions and central banks 6 7 - -
Liabilities to credit institutions and central banks - - 70 -
Parent Parent Group Group Company Company 85 Deferred tax Deferred tax liabilities
Management and President and Executive Vice Presidents 11 10 4 4 of which performance-related bonuses 2 2 1 1
Loans and Loans and advances Guarantees advances Guarantees 92 Loans and advances to and guarantees on behalf of members of administrative and supervisory bodies Group
Management and President and Executive Vice Presidents 8 - 1 -
Profi t/loss Book value for the Parent of shares Capital and fi nancial Domicile/ Group company in the Group reserves year Name of company Ref. No country holding % *) holding % *) EUR m EUR m EUR m 93 Group subsidiaries Banking
Investment services 3C Asset Management Ltd 1 Helsinki Finland 55.61 55.61 1
Profi t/loss Book value Capital for the Parent of shares and fi nancial Domicile Group company the Group reserves year Name of company Ref. No /country holding % holding % EUR m EUR m EUR m 94 Associated undertakings of the Group Financing
MB Equity Fund II Ky 2, 7 Helsinki Finland 18.03 - 6 36 1
WD Power Management Oy 2, 4 Helsinki Finland 21.74 - 0 0 0
Automatia Pankkiautomaatit Oy 2 Helsinki Finland 33.33 - 5 21 1
Tapio Technologies Oy 4 Espoo Finland 20.00 - 0 0 0
Other shares and participations held as fi nancial fi xed assets
Meridea Financial Software Helsinki Finland 19.35 19.35 6 2 *) -29
Realty World Ltd 2, 7 Helsinki Finland 100.00 - 1 2 0
Satura Oy 1 Helsinki Finland 100.00 100.00 1 *) Share of votes has been announced in brackets if different from the holding. In addition, a total of 53 property and housing companies have been accounted for in the consolidated accounts. By virtue of regulations for credit institutions 26 property companies have been excluded from consolidation, the balance sheet total of which is less than EUR 10 million.
Profi t/loss Book value Capital for the Parent of shares and fi nancial Domicile/ Group company in the Group reserves year Name of company Ref. No country holding % *) holding % *) EUR m EUR m EUR m
Sampo plc Visiting address: Unioninkatu 22, Helsinki Postal address: FIN-00075 SAMPO, Finland www.sampo.com E-mail: fi rstname.lastname@sampo.fi
Sampo Life Insurance Company Limited Visiting address: Bulevardi 56, Helsinki Postal address: FIN-00075 SAMPO, Finland
Sampo Fund Management Ltd Visiting address: Bulevardi 10 A, Helsinki Postal address: P.O.Box 1396, FIN-00075 SAMPO, Finland
Mandatum Private Equity Funds Ltd Visiting address: Bulevardi 10 A, Helsinki Postal address: P.O.Box 152, FIN-00121 HELSINKI, Finland
Mandatum & Co Ltd Visiting address: Fabianinkatu 23, Helsinki Postal address: P.O.Box 95, FIN-00131 HELSINKI, Finland
If P&C Insurance Company Ltd. Visiting address: Vattuniemenkuja 8 A, Helsinki Postal address: FIN-00025 IF, Finland www.if.fi
AS Sampo Elukindlustus (Life insurance company) Narva mnt 11, EE-15015 Tallinn, Estonia www.sampo.ee
AAS Sampo Dziviba (Life insurance company) Kronvalda bulvaris 3, LV-1010 Riga, Latvia www.sampo.lv
UAB Sampo bankas (Bank) Geležinio Vilko g. 18a, LT-2004 Vilnius, Lithuania www.sampo.lt
Sampo Powszechne Towarzystwo Emerytalne S.A. (Pension fund management company) ul. Domaniewska 41, Orion 5th fl oor, PL-02-672 Warsaw, Poland www.sampo.pl
Kaleva Mutual Insurance Company Visiting address: Bulevardi 56, Helsinki Postal address: FIN-00075 SAMPO, Finland