Sampo Pank performed well, and its operating profi t was close to EUR 6 million.
Realty World unveiled a new visual identity for its real estate agencies at the beginning of the year. During 2003 one third of the agencies were refi tted in line with the new identity, and the rest will be refi tted during the next two or three years.
The launch of the new name and brand of Finland’s leading P&C insurance company in the spring succeeded very well. The If name and logo quickly became wellknown and, at the same time, Sampo became more sharply profi led as a bank.
The Board elects the CEO and executives of Sampo Group, releases them from their duties, and decides on their terms and conditions of employment and on other compensation. In addition, the Board confi rms the Group’s staff planning targets and supervises their implementation, determines the grounds for the Group’s compensation system and decides on other far-reaching matters concerning the staff.
According to Sampo’s Articles of Association, the company ’s Board of Directors comprises no fewer than three and no more than ten members elected by shareholders at the Annual General Meeting. The Annual General Meeting of 2003 decided to elect eight members to the Board until the close of the Annual General Meeting to be held in 2004. The term of offi ce of the Board members is one year. The members of the Board annually elect a Chairman and Vice Chairman from among their members, at their fi rst meeting following the Annual General Meeting.
In its auditing work, Internal Audit applies the professional auditing standards approved by the IIA (Institute of Internal Auditors).
He was appointed member of the Board of Directors of Sampo plc and Chairman of the Board on 5 April, 2001
includes the best Nordic companies based on the principles of CR and good management practices.
Warrants from Sampo’s 1998 option programme were exercised to subscribe for 347,350 A shares during the year under review. Sampo’s Board of Directors was able, during the year, to approve 66,100 of these shares with a counter book value totalling EUR 11,117.22. The new shares were admitted for trading on the Helsinki Exchanges in lots following the entry of each lot in the Trade Register. The Board of Directors approved the rest of the subscriptions on 11 February 2004.
The subscription price is EUR 5.77 per share, and is reduced by the amount of the dividend. If the Annual General Meeting accepts the proposal by the Board of Directors concerning the distribution of dividends for 2003, the subscription price will be reduced to EUR 4.27.
On 6 February 2003, Sampo plc became the sole owner of AS Sampo Pank in Estonia after completing the redemption of the outstanding shares. It was decided to transfer AS Sampo Pank and another Sampo plc subsidiary, UAB Sampo bankas from Lithuania, to the ownership of Sampo Bank plc, a wholly-owned subsidiary of Sampo plc. The transfer was completed after the end of the fi nancial year, on 2 January 2004. The measure strengthens the role of the Baltic countries as part of Sampo’s banking operations.
shares acquired by 24 February 2003, i.e. EUR 409,436.69. Accordingly, the share capital was decreased without fi nancial or other consideration by annulling the 2,434,400 Sampo A shares bought back, causing a corresponding decrease in the number of A shares. The company’s capital and reserves was not reduced as a result of this measure. The decrease in share capital was entered in the Trade Register on 11 April 2003.
Substantial cost reductions achieved Operating profi t from banking and investment services was EUR 233 million (252). The return on risk allocated capital (RORAC) decreased to 17.8 per cent (19.2). The long-term return target is 20–25 per cent. The return on net asset value (RONAV) decreased to 10.1 per cent (10.9). The result was bolstered by Sampo Bank’s share of Sampo Life’s additional dividend,which is eliminated from the whole Group’s result, as well as the dividends and sales gains received on OM HEX shares. The renewed growth in the loan portfolio in 2003 increased the total volume of loans and advances to customers to EUR 13,908 million (12,490). Good results were also achieved in the sales of long-term savings products, cards, and certain other conventional banking products.
Mutual fund assets had increased by the end of the year to EUR 5.2 billion (3.9). This fi gure includes EUR 514 million (425) in investments by Sampo Group companies. The number of unit holders increased by over 20 per cent to 238,489 (197,371). In the course of the year, competition tightened in the rapidly growing fund markets. According to the Finnish Association of Mutual Funds’ Report published by OM HEX, Sampo had a 22.0 per cent (24.5) market share in December. In the retail customer segment, the market share was 23.5 per cent (25.5). Mutual fund savings related to retail customers’ unit-linked insurance policies are not included in the latter market share fi gures, because statistically they are considered investments made by institutions.
The premiums written by the Group’s life insurance companies in the year under review were EUR 528 million (613), of which Sampo Life accounted for EUR 515 million (602). The premiums written for unit-linked policies increased by 45 per cent to EUR 221 million (152) and these policies accounted for 42 per cent (25) of all premiums written in direct business. The proportion of premiums accumulated from regular payment policies also increased to 56 per cent (48), in line with the targets set.
Depreciation and write-down of tangible and intangible assets 19 -5 -8
Risk Management Principles Risk is an essential part of Sampo’s operating environment. The main objective of risk management is to ensure that the capital base is adequate in relation to the risks generated by business activities. The Board of Directors of Sampo plc is responsible for ensuring that the Group’s risks are properly managed and controlled. The Board sets the principles of risk management and provides guidance on the organisation of risk management and internal control in the business areas. The Board monitors the risk management process and has established a Risk Control Committee to control the Group’s risks. The major riskrelated decisions are made within the framework of the given authorities in the Investment Committee, the Credit Committee and the Asset and Liability Committee (ALCO). The Group’s overall risk exposures are reported to the Board on a monthly basis.
Assessing and monitoring the credit risks of corporate customers The credit risk management system for corporate customers has the following elements. Each signifi cant customer has a customer account offi cer who is familiar with the customer’s business and monitors its development. In addition, the customers with the biggest credit risks or largest exposures are analysed continually by a credit analyst, who is independent of the customer business units.
According to Moody’s KMV® model the median expected default frequency estimate for Finnish public companies has remained at a substantially stronger level than the corresponding estimates for US and Western European companies. Based on the above-mentioned model, the credit rating of listed companies has improved substantially since spring 2003.
Measured by Sampo’s credit risk model, the credit risk of corporate and institutional customers of banking increased during the year. The average LGD-weighted probability of default (PD) in corporate exposures at the end of the year was at a level of about one per cent, having increased by nearly 10 basis points. The expected credit loss of corporate exposures remained at the 0.4 per cent level of the beginning of the year and the economic capital grew from 5.1 per cent to 5.5 per cent, which is still substantially below the minimum capital adequacy level prescribed by the authorities (8 per cent). Total economic capital increased by 20 per cent from the level of the beginning of the year, due to growth in the volume of exposures and a slight average weakening in ratings. Analysed by rating categories, the relative share of exposures belonging to at least the L2-(BBB-) category declined from 78 per cent to 76 per cent. The total exposures included in the two lowest categories (L4,L4-) increased by EUR 77 million from the level of the beginning of the year. At the end of the year, these exposures totalled EUR 211 million and were secured by I-IV category collateral amounting to EUR 156 million. Non-performing loans fell by about one third from the level of the beginning of the year.
Total exposures to retail customers in default, as shown in the above table, decreased by EUR 11 million and include non-performing loans of EUR 33 million. Non-performing loans decreased by EUR 8 million.
In autumn 2003 Sampo Bank issued bonds under the European Medium Term Note (EMTN) programme with a total book value of over EUR 350 million. The reason was growth in the funding gap and the need for wholesale funding for future years. After a break of several years, Sampo Bank also began to issue on the ECP markets, due to investor demand and the desire to diversify the sources of funding.
Fixed income portfolio by S&P Rating 1 Group pension 42.3% 2 Individual pensions 23.1% 3 Individual life insurance 15.1% 4 Capital redemption 4.1% 5 Unit-linked 11.3%
The development of procedures to manage operational risks is ongoing, together with preparations for the new capital adequacy framework. The Group’s business units have used the self-assessment method to survey those operational risks that are considered the most important. At the same time, they have also evaluated risk management controls and instructions and developed risk indicator monitoring to depict changes in the level of risk.
Other investments have been valued at the exchange rates on the date of acquisition or on the balance sheet date, whichever is lower, with the exception of shares characterised as investments, which have been valued without separating the changes in exchange rates and market values. Exchange rate differences resulting from receivables and investments are included in the profi t and loss account under the items “Investment income” or “Investment charges”.
Securities which are sold or purchased under commitments to resell or repurchase them, or lent securities, are included in the original balance sheet item irrespective of the contract.
In note 28 the other non-interest earning loans comprise loans from which no income of any kind will be received, based on agreement with customers.
Number of shares at 31 Dec. 1,000 553,920 553,853 555,623 520,000 - 304,000
Weighted average share price EUR 6.85 8.16 10.11 8.96 - 6.19
Total 65 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.
Capital Net Group Parent Company Company Company Group employed income Unlet Company Capital Net Unlet Area 1) 2) space3) Area employed 1) income 2) space3)
At the end of the fi nancial year, EUR 10 million of the preferred capital notes issued in 1998 by Sampo Bank were outstanding. The loan totalled EUR 94 million, of which Leonia Corporate Bank had subscribed for EUR 84 million when it merged with Sampo Bank on 31 December 2000. The notes bear interest at the Helibor 12-month rate plus 100 basis points for 5 years, and thereafter the Helibor 12-month rate plus 225 basis points. The interest on the loan can be paid only from the distributable capital. The interest is paid annually in arrears. The loan is undated and is repayable, with the consent of the Finnish Financial Supervisory Authority, 5 years after the date of issue. The preferred capital notes are included in the Tier 1 capital of the Bank. The name of Leonia Bank plc was changed to Sampo Bank plc on 21 February 2001.
Derivative contracts 424 277 64 Accruals and deferred income Deferred interest 168 174 65 Subordinated liabilities Subordinated liabilities with a book value more than 10% of the total amount of such liabilities 315 282
Sampo Bank plc 4) 50 EUR 2.67 16 Dec. 2013 1) Repayable on interest payment date December year 2006. 2) Repayable on due date. 3) Repayable on any interest payment date. 4) Repayable on interest payment date December year 2008.
Included in the Group undertaking’s balance sheets 27 25 69 Assets pledged as collateral security and secured liabilities as well as other assets pledged on behalf of the company and other group undertakings Assets pledged as collateral security
Life Insurance Business 78 Contingent liabilities, pledged assets and derivatives Mortgages for own loans 1 1
For other purposes underlying instruments 499 602 fair value 2 3
Management and President and Executive Vice Presidents 19 - 10 of which from banking and investment services 10 - 8 -
We have conducted the audit in accordance with Finnish Generally Accepted Auditing Standards. Those standards require that we plan and perform the audit in order to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements, assessing the accounting policies used and signifi cant estimates made by the management, as well as evaluating the overall fi nancial statement presentation. The purpose of our audit of administration has been to examine that the Board of Directors and the Managing Director have legally complied with the rules of the Finnish Companies Act.
In our opinion, the fi nal accounts have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of fi nancial statements in Finland. The fi nancial statements give a true and fair view, as defi ned in the Accounting Act, of both the consolidated and parent company result of operations, as well as of the fi nancial position. The fi nancial statements can be adopted and the members of the Board of Directors and the Managing Director of the parent company can be discharged from liability for the period audited by us. The proposal made by the Board of Directors regarding the disposition of distributable profi t is in compliance with the Finnish Companies Act.
Sampo Bank plc Visiting address: Unioninkatu 22, Helsinki Postal address: FIN-00075 SAMPO, Finland
Sampo will publish three Interim Reports in 2004, on 6 May, 12 August and 3 November. The Interim reports are published on the Internet at /interimreports