Pohjola Bank plc
Stock exchange release, 2 November 2011, 8.00 am (EET)
Interim Report
Pohjola Bank plc Interim Report for 1 January-30 September 2011
Pohjola Group Performance for January-September 2011
- Consolidated earnings before tax came to EUR 245 million (242). Earnings before tax at fair value were EUR 65 million (273) and return on equity at fair value stood at 2.8% (11.7).
- Banking earnings before tax rose to EUR 135 million (93). These included EUR 36 million (89) in impairment charges on receivables. The loan portfolio increased by 8% from its level on 31 December 2010 and the average margin decreased to 1.32% (1.36).
- Within Non-life Insurance, insurance premium revenue rose by 7% and the balance on technical account was good. Excluding amortisation on intangible assets arising from company acquisition, the operating combined ratio stood at 89.4% (88.6). Within Non-life Insurance, return on investments at fair value was -1.8% (5.2).
- Asset Management increased its earnings before tax by 11% to EUR 19 million (18) and assets under management amounted to EUR 31.5 billion (35).
- The Group Functions reported earnings of EUR 20 million (48) before tax.
- Outlook: The Group's operational profitability is expected to remain good during the rest of the year. However, fourth-quarter consolidated earnings will be eroded by a reduction of an estimated 0.1-0.3 percentage points in the discount rate and higher technical provisions due to a change in the mortality model. The growth in the amount of technical provisions will become clear towards the end of this year. Consolidated earnings before these non-recurring items and tax are expected to be at somewhat the same level in 2011 as in 2010 (Previous estimate: Consolidated earnings before tax in 2011 are expected to be higher than in 2010.) It is estimated that Non-life Insurance's operating combined ratio will vary between 89 and 93% (unchanged). For more detailed information on the outlook, see "Outlook towards the year end" below.
July-September 2011
- Consolidated earnings before tax amounted to EUR 47 million (103). Loss before tax at fair value was EUR 101 million (earnings of 165). The euro area's debt crisis and the resulting weak developments in capital markets reduced earnings before tax posted by investment operations and the Markets division by a total of over EUR 60 million, year on year.
- Banking earnings before tax amounted to EUR 43 million (38). Impairment charges on receivables and their recoveries were EUR 1 million (28) in net terms.
- Within Non-life Insurance, the operating combined ratio stood at 85.2% (82.8) and the return on investments at fair value was -2.8% (2.6).
- Earnings before tax recorded by Asset Management improved by 6% to EUR 6 million and the cost/income ratio stood at 49% (51).
- The Group Functions reported a loss of EUR 4 million (earnings of 18) before tax.
| Earnings before tax, € million | Q1-3/ 2011 | Q1-3/ 2010 | Change,% | Q3/ 2011 | Q3/ 2010 | Change, % | 2010 |
| Banking | 135 | 93 | 46 | 43 | 38 | 13 | 133 |
| Non-life Insurance | 71 | 84 | -16 | 3 | 42 | -94 | 83 |
| Asset Management | 19 | 18 | 11 | 6 | 6 | 6 | 31 |
| Group Functions | 20 | 48 | -59 | -4 | 18 | 61 | |
| Total | 245 | 242 | 1 | 47 | 103 | -54 | 308 |
| Change in fair value reserve | -180 | 31 | -148 | 62 | -17 | ||
| Earnings/loss before tax at fair value | 65 | 273 | -76 | -101 | 165 | 291 | |
| Earnings per share, EUR | 0.57 | 0.56 | 0.11 | 0.24 | 0.72 | ||
| Earnings per share at fair value, EUR | 0.15 | 0.63 | -0.23 | 0.38 | 0.68 | ||
| Equity per share, EUR | 7.20 | 7.39 | 7.44 | ||||
| Average personnel | 3,135 | 2,996 | 3,247 | 3,007 | 3,005 |
| Financial targets | Q1-3/ 2011 | Q1-3/ 2010 | Q3/ 2011 | Q3/ 2010 | 2010 | Target |
| Return on equity at fair value, % | 2.8 | 11.7 | -12.7 | 21.1 | 9.3 | 13.0 |
| Tier 1 ratio, % | 11.0 | 12.3 | 12.5 | >9.5 | ||
| Operating cost/income ratio by Banking, % | 37 | 34 | 41 | 33 | 35 | <40 |
| Operating combined ratio, % | 89.4 | 88.6 | 85.2 | 82.8 | 89.7 | 92.0 |
| Operating expense ratio, % | 20.6 | 21.3 | 21.1 | 20.0 | 21.3 | <20 |
| Solvency ratio, % | 81 | 99 | 86 | 70 | ||
| Operating cost/income ratio by Asset Management, % | 49 | 52 | 49 | 51 | 53 | <50 |
| AA rating affirmed by at least two credit rating agencies | 3 | 3 | 3 | > 2 | ||
| Dividend payout ratio a minimum of 50%, provided that Tier 1 > 9.5% | 55 | >50 |
President and CEO Mikael Silvennoinen:
Our customer business performed well during the reporting period.
We have continued to strengthen our market position in both Banking and Non-life Insurance, and our operational profitability has remained good.
Our January-September consolidated earnings before tax were on a par with those reported a year ago.
July-September earnings before tax were eroded by the euro area's debt crisis and the resulting weak financial performance of investment operations. Earnings before tax for the third quarter were less than half than those reported a year earlier and in the second quarter of the current year.
Our loan portfolio grew at a rate above the market average during the third quarter. The loan portfolio grew by 8% from its 2010-end level and in September our market share of euro-denominated corporate loans increased to over 20% for the first time. Impairment charges were markedly lower than a year ago. The Markets division showed favourable development in client income but trading business was weak due to the exceptional market situation. The Baltics business developed favourably during the reporting period.
Insurance premium revenue continued to grow vigorously. We received over 27,000 new loyal customer households during the reporting period, their number totalling over half a million. The balance on technical account was at the same good level as the year before. Investment income turned negative during the third quarter, due to the market effects arising from the euro area's debt crisis and to impairment charges transferred from the fair value reserve to the income statement.
Asset Management showed slightly improved earnings year on year although assets under management decreased from their 2010-end level. The cost/income ratio was better than targeted.
We have typically been able to strengthen our market position in difficult market conditions. A gradual slackening of competition, our customer-focused approach coupled with our investments in customer service resources this year provide us with solid foundations for strengthening our position in the current, exceptional market situation too.
Outlook towards the year end
Companies' preparation for the future is the primary determinant that will keep up demand for loans. The prevailing market situation has somewhat eased competitive pressures, paving the way for a potential rise in the average corporate loan margin. Impairment charges for 2011 are expected to be lower than the year before. The greatest uncertainties related to Banking's financial performance in 2011 are associated with future impairment charges on the loan portfolio.
Insurance premium revenue is expected to continue to increase at an above-the-market-average rate among private customers. Insurance premium revenue from corporate customers has rebounded. In Non-life Insurance, the operating combined ratio is estimated to vary between 89% and 93% (unchanged) in 2011 if the number of large claims is not much higher than in 2010. Non-life Insurance investment income will be markedly lower than in 2010.
The greatest uncertainties related to Asset Management's financial performance in 2011 are associated with the actual performance-based commissions and fees tied to the success of investments and the amount of assets under management.
The key determinants affecting the Group Functions' financial performance include net interest income arising from assets in the liquidity portfolio, any capital gains or losses on notes and bonds and any impairment charges recognised on notes and bonds in the income statement. Capital gains on notes and bonds will be lower than in 2010.
The Group's operational profitability is expected to remain good during the rest of the year. However, fourth-quarter consolidated earnings will be eroded by a reduction of an estimated 0.1-0.3 percentage points in the discount rate and higher technical provisions due to a change in the mortality model. The growth in the amount of technical provisions will become clear towards the end of this year. Consolidated earnings before these non-recurring items and tax are expected to be at somewhat the same level in 2011 as in 2010 (Previous estimate: Consolidated earnings before tax in 2011 are expected to be higher than in 2010.). The abovementioned non-recurring items will have no effect on the Non-life Insurance operating combined ratio.
There is exceptionally great uncertainty about economic outlook and the operating environment. A major risk that may undermine the economic outlook is the exacerbation of the fiscal crisis in certain euro countries. The crisis with its repercussions may have a significant impact on the entire financial sector's operating environment.
All forward-looking statements in this report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view of the future development in the operating environment and the future financial performance of Pohjola Group and its various functions, and actual results may differ materially from those expressed in the forward-looking statements.
Helsinki, 2 November 2011
Pohjola Bank plc
Board of Directors
This Interim Report is available at www.pohjola.fi > Media > Releases, where background information on the release can also be found.
Analyst meeting, conference call and live webcast
Pohjola will hold a briefing in English for analysts and investors on 2 November starting at 3.00 pm Finnish time, EET (2.00 pm CET, 1.00 pm UK time, 8am US EST). The briefing is a combined analyst meeting, conference call and live webcast.
Analysts and investors may attend the briefing in one of the following two ways:
1) By viewing the briefing as live webcast via the internet. The link will be available on the IR website before the briefing begins. Questions on the internet are welcome via a question button available in the webcast window. An on-demand webcast of the briefing can be viewed via the IR website afterwards.
2) By dialling one of the regional conference call numbers shown below. Questions are welcome by telephone in the Q&A session according to instructions. To participate via a conference call, please dial in 5-10 minutes before the beginning of the event:
UK, International +44 203 043 24 36
US +1 866 458 40 87
FIN +358 923 101 527
Password: Pohjola
Press conference
Mikael Silvennoinen, Pohjola Bank plc's President and CEO, will present the interim results in a press conference on OP-Pohjola Group's premises (Teollisuuskatu 1b, Vallila, Helsinki), on 2 November, starting at noon.
Financial reporting in 2012
Schedule for Financial Statements Bulletin for 2011 and Interim Reports in 2012:
Financial Statements Bulletin 2011: 8 February 2012
Interim Report Q1/2012: 3 May 2012
Interim Report H1/2012: 1 August 2012
Interim Report Q1-3/2012: 31 October 2012
DISTRIBUTION
NASDAQ OMX Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media
www.pohjola.fi, www.op.fi
For additional information, please contact
Mikael Silvennoinen, President and CEO, tel. +358 (0)10 252 2549
Vesa Aho, CFO, tel. +358 (0)10 252 2336
Tarja Ollilainen, Senior Vice President, Investor Relations, tel. +358 (0)10 252 4494
Pohjola Bank plc
Pohjola Bank plc is a Finnish financial services group which provides its customers with banking, non-life insurance and asset management services. Our mission is to promote the prosperity, security and wellbeing of our customers. Profitable growth and an increase in company value form our key objectives. Pohjola Group serves corporate customers in Finland and abroad by providing an extensive range of financial, investment, cash-management and non-life insurance services. We offer non-life insurance and private banking services to corporate customers. Pohjola Series A shares have been listed on the Large Cap List of the NASDAQ OMX Helsinki since 1989. The number of shareholders totals around 35,000. Pohjola's consolidated earnings before tax came to 308 million euros in 2010 and the balance sheet total amounted to 36 billion euros on 31 December 2010. Pohjola is part of OP-Pohjola Group, the leading financial services group in Finland with over four million customers. www.pohjola.com
